[...] I chose 5% as my discount rate in this valuation. I decided on this figure because I consider the amounts involved in running this site small and not very risky and more akin to putting the money in a savings account rather than anything else. After all, if the project fails, I quit running the site, and that’s that. The ads I run are done through pretty established companies that will pay when they’re supposed to. And I can’t very well invest the small amount I’m putting in each month nor the amounts I’m getting back in other places (like the stock market), so my opportunity cost is also minimal. Note that 5% is the annual rate, and I must change this to the appropriate periodic rate in order to calculate the NPV correctly. Using my periodic rate calculator, the monthly equivalent of 5% is around 0.407% or so. [...]

Thanks for the information. Now I need to take a performance return thats more than a year and convert it into an annualized number. I’m sure I just need to poke around a little.

I understand the conversion of the annual rate to a periodic effective rate.

In Excel, the directions for using the FV (Future Value) function indicate that we should take the annual rate and divide it by the period to get a periodic rate. Shoud we use the method described here instead?

Thanks

Hi Glenn,

I hate to punt on the question, but the answer is that it depends. If you’re given an APR (annual percentage rate), then you do as Excel says and divide by the period. If you’re given an APY (annual percentage yield), you’d need to take the compounding into consideration and use the periodic effective rate. (If you’re curious, I wrote an article last week on the differences between the two here).

At my last job, the corporation had a mandated discount rate of 15% per year to be used in all NPV analyses and we were instructed to use the effective periodic rate. This makes sense because in order to arrive at 15% annually, you’d have to take compounding into effect. If you didn’t, the annual discount rate would always be greater than 15%.

Hope that helps more than it confuses!

-Ricemutt

how to convert an 8% cumulative return to a compounded return for a 3 year holding period.

Can you provide the mathematical proof for converting an annual rate to a periodic (quarterly, monthly, etc.) rate. Thanks

i want to find out IRR of :-

Investment £100
monthly returns £10 per/month
period of 12 months or 1 year

will you please sent me the IRR of above question on my Email.

Thank you,

To convert a monthly IRR into an annualized IRR number, you use the following formula:

Annualized IRR = ((1+montly IRR)^12)-1

Do you agree?

Thanks
Bill

Can I have an analysis of how you came to the formula?

Thanks
Beck

Can somebody help me please, I need to calculate the effective interest rate, using compounding base on the formula below? Here are the given data:
Face value: $100,000
Period of payment: 5 yrs (annually)
Nominal rate: 12%
Net Price: $89,944
Effective interest rate: ?
Formula:
100,000(P/F,i,5)+100,000*12%(PA,i,5)

Thank you.

I am trying to learn how to calculate monthly amt to be received on a 2.36 interest rate on a figure of 100,000.00

THIS FORMULA IS INCORRECT. DO NOT TRUST IT

WILLIAM LAWRENCE said :
To convert a monthly IRR into an annualized IRR number, you use the following formula:

Annualized IRR = ((1+montly IRR)^12)-1

Agree

But wat to do with the fornightly or weekly payments ????????
do tell me guys

Can somebody please answer the question below.

ASSUMING THAT I MAKE MONTHLY PAYMENTS OF $30,000. AND HAS AN OUTSTANDING BALANCE AFTER 6 YEARS(OSB/72) OF $3,361,291,39. IF THE MARKET RATE FOR SIMILAR MORTGAGE IS j/2=12.25% and i make a down payment of $3,200.000. What would be the market value of the offer?

Do you know the formula to convert a Ann/360 yield to a Semi 30/360 bond yield?

For NPV calculation, how do you calculate the discount rate table for 8% over a 5 year period ?

If I am paying interest of 4% quarterly than how do I determine the rate this is on an annualized basis?? Can someone tell me the formula?

formula:

A=P(1+C)n

to thom: your annual rate is calculated by this formula:
R(annual) = [(1+r(quarter rate))^4]-1

If my city has 3% of annual population growth rate what is the daily increase rate in growth and what is the monthly growth rate of the population. I f someone tell me the formula to calculate

Hi there, thanks for sharing some of the examples, i think you may be able to help me in my current anomaly.

Is it possible to get a single rate (something like an IRR) for a loan with floaring rates across periods, lets say on term of 5 years, 1st year 5%, second year 6% and third year 7% and 4th and 5th 8%, how can we calculate a single rate of interest of the entire term of the loan.

Please advise.

thanks

can u give me a formula on how to get the daily effective rate of 1 Million. daily amortization (interest + Partial payment on principal (20% per annum)). 1 year term, 13% interest rate per annum, and 5% service charge per annum.

I can not seem to figure out this problem
Your firm is paying $1.8 to borrow $98.2
for 25 dys (=35-10) calculate the interest rate per period & then annualize it.