[R-SIG-Finance] [R-sig-finance] A question on Interest Rate
Sean Carmody
seancarmody at gmail.com
Wed May 6 00:50:19 CEST 2009
Note also that since there are a number of conventions to calculate
for a fraction of a year (e.g. actual/360. actual/365, etc), simply
quoting the interest rate of 9% doesn't provide enough information to
perform the calculation, so as he noted, Reiner had to make an
additional assumption. In this case he assumed an actual/actual
convention.
Sean.
On Wed, May 6, 2009 at 1:02 AM, Adams, Zeno <Zeno.Adams at ebs.edu> wrote:
> I think that Reiner is basically right:
>
> Instead of using the power 8 (which falls short of the 356 days) you would have to use the power 365/44 = 8.295 if you want to have it exact.
>
> Thus, you would have (1+0.01*y)^(356/44) = 1.09 => y = 1.010442692% which is slightly lower than your 1.083044% (as expected).
>
>
> -----Ursprüngliche Nachricht-----
> Von: r-sig-finance-bounces at stat.math.ethz.ch [mailto:r-sig-finance-bounces at stat.math.ethz.ch] Im Auftrag von RON70
> Gesendet: Dienstag, 5. Mai 2009 16:39
> An: r-sig-finance at stat.math.ethz.ch
> Betreff: Re: [R-SIG-Finance] [R-sig-finance] A question on Interest Rate
>
>
> Thanks davidr-2 for your response. However I still have doubt. This means if
> I deposit $100 then after 44 days I would get $(100+8.662688075), which give
> rate of return 9% annually? I think you considered annualized return (not
> very sure) however I want "direct/realized" return from my deposit. Will you
> please clarify me?
>
> Thanks and regards,
>
>
> davidr-2 wrote:
>>
>> Assuming Act/Act (this year 365/365), you should have
>>
>> (1 + y/100/(365/44))^(365/44) = (1 + 9/100) => y = 8.662688075 %
>>
>> David L. Reiner, PhD
>> Head Quant
>> Rho Trading Securities, LLC
>>
>>
>> -----Original Message-----
>> From: r-sig-finance-bounces at stat.math.ethz.ch
>> [mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of RON70
>> Sent: Tuesday, May 05, 2009 1:56 AM
>> To: r-sig-finance at stat.math.ethz.ch
>> Subject: [R-SIG-Finance] [R-sig-finance] A question on Interest Rate
>>
>>
>> Please forgive me if my question is too childish however if anyone give
>> me
>> some favor on my problem I would be grateful.
>>
>> I have a deposit with tenor 44 days that gives 9% interest p.a. However
>> I
>> want to calculate rate of return from that deposit for 44 days. Here I
>> proceed as follows. Let say it is y%, then I have following equation :
>>
>> $100*(1+y/100)^8 = $100*(1+9/100) -> y = 1.083044%. Is it correct?
>> However
>> here my doubt is LHS covers only 44*8 = 352 days wherein a year is
>> assumed
>> as 360 days. Therefore there still 8 days missing in my calculation.
>> Therefore I am in dilemma about the correctness of my calculation. Can
>> anyone please suggest if my calculation is ok? Above calculation comes
>> from
>> pricing a forward contract with 44 days maturity.
>>
>> Regards,
>> --
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>
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Sean Carmody
The Stubborn Mule
http://www.stubbornmule.net
http://twitter.com/seancarmody
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