Periodic interest rate

The periodic rate is the rate the formula actually applies. If a stated annual rate of 6% is compounded monthly under the module's simple quoted-rate convention, then:

i = 0.06 ÷ 12 = 0.005 per month

The matching three-year horizon contains 3 × 12 = 36 monthly periods. Using 0.06 with 36 applies 6% thirty-six times; using 0.005 with 3 applies a monthly rate only three times. Both are unit errors even though a calculator returns a number.

Lesson 2 supplies the compounding mechanism. As a preview, a $1,000 amount entered as 0.06 for 36 periods would produce about $8,147.25, while the controlled 0.005 monthly rate for the same 36 periods produces about $1,196.68. The dramatic difference comes from applying the wrong interval rate, not from a subtle rounding choice.

Always show the conversion from percentage to decimal. Six percent is 0.06, not 6. Label the result “per month,” “per quarter,” or another actual interval; the symbol i alone hides the most important control.

Boundaries

Dividing an annual quote by the number of intervals is valid only when the quote is explicitly a nominal or stated annual rate convertible that way. An effective annual rate, continuously compounded rate, discount yield, day-count quote, or irregular-period contract needs its own convention. Fees, taxes, credit costs, and expected investment returns also do not become part of i unless the model and evidence explicitly include them.

The arithmetic uses a supplied rate. It does not select or justify the rate.