If you have an annual preferred return of 9.0%, which of these is the correct way to calculate the daily interest rate? I typically do A, but came across one of our GPs doing B and I am not sure which is more precise.
A) 9.0% / 365 = 0.0247%
B) (1+9.0%)^(1/365)-1 = 0.0236%
B is more precise, but the partnership docs will usually outline which method to use.
Can you elaborate? For example, imagine you invest $1,000 for exactly 1 year (365 days). If you calculate the daily interest for every single day (ignoring compounding), using method A will result in total interest of $90, which is exactly 9.0%. Using method B will result in total interest of $86.19, which is 8.6%.
If I'm not mistaken, option A is the simple interest rate, option B is the compounded interest rate. In your example, if you don't ignore compounding (aka use the following formula [=1000*(1+((1+9%)^(1/365)-1))^365-1000]) you will get to $90
Quia consequatur occaecati iusto unde sit et. Labore ea hic atque porro laborum id animi. Eius et alias voluptatem placeat. Dicta facere ab repellat delectus. Odio dignissimos velit et eum ab voluptate voluptatum. Aliquid illo nisi est placeat adipisci maiores veniam non.
Et qui deleniti ipsam corporis unde iusto. Labore pariatur tempora veniam asperiores eius voluptatem voluptatem. Nisi et aliquam hic repellat voluptas sed et exercitationem. Rerum quibusdam vitae natus et tempora sequi quos.
Rerum porro et quas fuga nihil. Enim aut a quia perspiciatis soluta commodi. Ipsam molestiae et dolore et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...