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Time Value of Money
36
Table 3-6 Interest Rate Conversion Example
Keys Display Description
365
I
Inputs
365
as the value for the number of compounding
periods per year.
>=
Scrolls to the variable for the effective rate and calculates it. A
36.5% nominal rate compounded daily equals an effective
rate of 44.03%.
Note: C/YR is the same number as P/YR in TVM calculations, since most interest calculations are based on the same number
of payments and compounding periods per year, and interest rate conversions are commonly linked to a subsequent TVM
calculation. This feature is provided for your convenience, but this means modifying one number also modifies the other. If
your TVM problem requires different values for P/YR and C/YR, refer to the section below titled,
Canadian Mortgages: TVM
Canada
.
The IConv menu permits you to solve for C/YR, but the result is not always a positive integer. TVM calculations, however,
require C/YR to be an integer larger than zero. If you attempt to perform a TVM calculation without a valid value for C/YR or
P/YR, an invalid P/YR error (ER: Invalid P/YR) will occur.
If you set C/YR to
0
, the resulting interest conversions are calculated assuming a continuous compounding. As stated above,
0
is not a valid value for P/YR or C/YR when used in TVM calculations, and you will have to reset it to a valid value before
performing TVM calculations.
To reset the menu items to their default values, with any item of the Interest Conversion menu displayed press :x.
With IConv displayed, press I to reset, or O to cancel. To exit the menu, press O once again.
Canadian Mortgages: TVM Canada
Figure 4 The Menu Map for the P/YR Menu
In Canada, interest rates for mortgages are, by law, given as a nominal interest rate, compounded twice yearly. This means
that the compounding period for the per-period interest rate calculation differs from the compounding period used to calculate
the nominal rate.
By default, the HP 20b performs calculations assuming that the number of compounding periods always equals the number of
payments per year. You can, however, enable the
TVM Canada
option in the Mode menu, which enables you to select the
number of compounding periods per year. For more information, refer to Chapter 1,
Basic Features
.