Periodic Interest Rate

The periodic interest rate is the interest rate charged per period, such as per year, per month, or per day. It is calculated by dividing the annual interest rate by the number of periods per year. For example, if the annual interest rate is 10% and the number of periods per year is 12, then the periodic interest rate is 10 / 12 = 0.83% per month.

The periodic interest rate is used to calculate the interest charged on a loan or investment. The amount of interest charged is calculated by multiplying the principal amount by the periodic interest rate and the number of periods. For example, if a loan has a principal amount of $100,000 and an interest rate of 10% per year, then the interest charged for one year will be $100,000 * 0.10 = $10,000.

The periodic interest rate is also used to calculate the future value of an investment. The future value of an investment is the amount of money that the investment will be worth at a future date. The future value is calculated by multiplying the present value of the investment by the future value interest factor. The future value interest factor is a function of the periodic interest rate and the number of periods. For example, if an investment has a present value of $100,000 and an interest rate of 10% per year, then the future value of the investment in one year will be $100,000 * (1 + 0.10) = $110,000.

The periodic interest rate is an important concept in finance because it is used to calculate the interest charged on loans and investments. It is also used to calculate the future value of investments.