Key Takeaways

When compound interest rates are given as above, the percent annual rate is called the nominal rate and denoted by j. To show clearly what the compounding interval is, add a subscript to the j (j_m) . This indicates the number of times per year the interest is to be compounded.

• Thus, 8% compounded semi-annually would be j₂ = 8%, m=2.
• Thus, 18% compounded monthly would be j₁₂ = 18%, m=12.

The periodic rate is used in most BAII Plus calculations.

The rate that gives the percent interest each period is called the periodic rate and is denoted by i. This is the rate actually used in most formulas. The following are examples.

Example 4.2.1

1. For 8% compounded semi-annually
2. For 18% compounded monthly

In general, to get i from j_m:

 

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