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why limit yourself to annual time periods and constant interest rates this video explains how you can go beyond this rigid structure while enjoying the flexibility of the notation developed so far in real life you will face two questions first how to deal with interest rates when the time unit changes and second how to go from a constant interest rate to a rate that changes over time assume a yearly interest rate I which rates is an applicable to the nth part of a year I start M denotes the rate applicable to such a period obviously you can now calculate in two ways how much one euro at time zero is worth at time one with the yearly rate one euro close to one plus I euro but at the same time this should be equal to one plus I star M to the power M this equality allows you for instance to go from a yearly to a monthly rate letamp;#39;s start from a given interest rate of 3 percent per year you obtain the monthly interest with the transformation derived earlier here a yearly interest of
