Python for Finance

Chapter 5
By applying equation (8), we have a result for APR2:
>>>Rs=(1+0.05/2)**(2/12)-1
>>>Rs*2
0.008247830930288469
>>>
The corresponding -line Python program is shown here. To save space, the program
has no additional explanation or comments:
def APR2APR(APR1,m1,m2):
return m2*((1+APR1/m1)**(m1/m2)-1)
For a continuously compounded interest rate, different ways could be used to
explain this confusion concept. First, we apply the formula of Effective Annual Rate
(EAR) by increasing the compounding frequency of m:
For example, if APR is 10% and compounded semi-annually, EAR will be 10.25%:
>>> (1+0.1/2)**2-1
>>>
0.10250000000000004
Since this function is quite simple, we could write a Python function instead, see the
following program:
def EAR_f(APR,m):
return (1+APR/m)**m-1
Next, assume that the APR is 10% and let's increase the compounding frequency, see
the following program:
import numpy as np
d=365
h=d*24
m=h*60
s=m*60
ms=s*1000
x=np.array([1,2,4,12,d,h,m,s,ms])
APR=0.1
for i in x:
print(EAR_f(APR,i))
[ 155 ]