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7 Jun 2018
Loan/deposit products use different compounding frequencies. For example, mortgage, CDs use monthly compounding. Credit cards use daily compounding, even though customers pay interest on a monthly basis. Bonds use quarterly, semiannual or annual compounding. Regardless of compounding frequencies, all the interest rates are quoted per annum (annualized). For example, 4% mortgage rate doesnât mean the borrower pays 4% of the mortgage balance every month. He pays 4%/12 a month. Q1. Have you made any mistakes in the past with the compounding frequency/interest rate quotation? Share your story. Q2. Why do these products use different frequencies? Q3. Why do we quote all the rates per annum?
Loan/deposit products use different compounding frequencies. For example, mortgage, CDs use monthly compounding. Credit cards use daily compounding, even though customers pay interest on a monthly basis. Bonds use quarterly, semiannual or annual compounding. Regardless of compounding frequencies, all the interest rates are quoted per annum (annualized). For example, 4% mortgage rate doesnât mean the borrower pays 4% of the mortgage balance every month. He pays 4%/12 a month. Q1. Have you made any mistakes in the past with the compounding frequency/interest rate quotation? Share your story. Q2. Why do these products use different frequencies? Q3. Why do we quote all the rates per annum?
Patrina SchowalterLv2
10 Jun 2018
