How to Annualize a Percentage

Step-by-Step Guide

1. 1

   Step 1: Determine whether or not your interest rate compounds annually.

   This should be listed in your loan contract or investment documents.
   
   Interest rates may also compound quarterly (4 times per year), monthly, or weekly.
   
   If your compounding rate is anything other than annually, you should go to annualizing a compounding interest rate to calculate your rate.
   
   Credit cards, for example, may advertise monthly interest rates, like 1 or 2 percent, but they have to show borrowers the annualized rate when they sign credit contracts.
   
   This will be listed as the annual percentage rate, or APR, on the contract.
2. 2

   Step 2: Find out the period interest rate.

   This is the amount of interest earned or paid each period.
   
   Again, this can be weekly, monthly, or quarterly.
   
   For example, you might pay 1 percent per month in credit card interest.
   
   This is your period interest rate.For the purposes of calculating the annualized rate, you will have to know your period interest rate expressed as a decimal.
   
   You can find this value by dividing the stated period interest rate by
   100.
   
   For example, 1 percent would be 1/100, or
   0.01. , This is the number of interest periods there are in one year.
   
   For a stated monthly interest rate, there would be 12 period in a year.
   
   Similarly, a loan or investment using a weekly interest rate would have 52 periods in a year and one with a quarterly rate would have
   4.
   
   Alternately, a bond payment may make semiannual interest payments.
   
   This would be 2 payment period per year., The annualized percentage rate can be calculated using the following formula: n∗r{\displaystyle n*r}.
   
   In the formula, n represents the number of periods in the year and r represents the period interest rate.
   
   For example if you were quoted a rate of 1 percent per month (r=0.01, n=12), compounded annually, your annualized interest rate is 12∗0.01=0.12{\displaystyle 12*0.01=0.12} (or 12%).
   
   This calculation should be used if the rate compounds annually, rather than quarterly, monthly, or some other frequency.
3. 3

   Step 3: Determine the number of periods in a given year.

4. 4

   Step 4: Calculate the annualized percentage rate.

Detailed Guide

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