Bond Rate Calculation

[EssoExplJoe]

How do I calculate the nominal annual interest rate of return on a bond whose maturity is days from purchase instead of years?

 

[SanjayGMusafir]

The Interest is P x R where P is Principal R is Rate % - Generally it is per annum

So convert it into days we do (P x R x D)/365

Remember to put R as %

Hope it helps

 

[SanjayGMusafir]

Check this and revert -

Book1
	A	B
1
2	Principal	10,000
3	Rate	7%
4	Duration (Days)	20
5
6
7	Interest Earned	38.36
8
9	Interest Earned for Year	700
10	for 20 days	38.36
Sheet1

Cell Formulas
Range	Formula
B7	B7	=ROUND(B2*B3*B4/365,2)
B9	B9	=B2*B3
B10	B10	=ROUND(B9*20/365,2)

 

[Cubist]

How do I calculate the nominal annual interest rate of return on a bond whose maturity is days from purchase instead of years?

If you know the daily effective rates, multiply by 365 to get the nominal annual rate.

 

[SanjayGMusafir]

If you know the daily effective rates, multiply by 365 to get the nominal annual rate.

@Cubist Banks generally don't give Daily rates and converting them to Daily effective rate can be a misleading calculation, if I may update.

 

[Cubist]

@Cubist Banks generally don't give Daily rates and converting them to Daily effective rate can be a misleading calculation, if I may update.

Banks normally give nominal annual rates, but the OP is asking how to calculate it suggesting it isn't given. It's not necessarily misleading if they're being compounded daily. In your post #3, you're assuming 7% is the annual nominal rate, this isn't correct if the interest is being calculated daily. It needs to be divided by 365 i.e. 7%/365.

 

[SanjayGMusafir]

Only OP can clarify the situation

Thanks a lot