AER to monthly rate

[Jim02]

Hi,

Is there a nice easy formula to work out the monthly interest rate, given an AER? For example, if a BS offers 5% AER, how can I work out what the monthly interest rate is?

Thanks

Jim

[Robert_Sterling]

The monthly rate multiplier , making the usual assumptions, is the 12th root of the annual rate multiplier.

It is not 1/12 th of the AER.

AER = 5%

Annual Multiplier ! 1.05

Monthly Multiplier 12th root of 1.05 != !1.004074124

Monthly interest rate !0.00407 approx i.e. 0.407% approx.

Usual assumptions:-

All years have 365 days

All months have the same number of days.

[Jim02]

Thanks Robert,

I knew it couldn't simply be 1/12th, but I couldn't work out exactly what the figure was. It's nice and easy, as it turns out!

Cheers

Jim

[Robert_Sterling]

Thank you very much !:)

You do a somewhat similar operation to get from 1% per month as the monthly rate

Monthly Multiplier !1.01

Raise to power 12 !

1.01^12 != !1.1268

So annual rate is !12.68%