588First of all, use formula (c) to find the AER on a monthly basis:
593m = 8 12 - 1 100
597= 0.451... 5.413...% per annumpaid monthly
599Then use formula (d) to convert this to an annually compounded rate:
607 - 1 100 = 5.5501...
608 12( months) 100
613giving an AER of 5.55% to two decimal places. This is higher than the gross rate reflecting
614the value of interest paid after 8 months rather than a year.
6187. Unconditional bonuses, for example a launch bonus of 0.5% paid at least until 30
619 June 2000 (this example was drafted in November 1999) on an account paying 5%
620 annually on 30 April without a fixed term, are treated as a step down in the rate
621 when the guarantee expires. So, assuming a deposit on 1 November 1999, the
622 depositor would receive 5.5% for 8 months and then 5% for 4 months (following
623 guideline A3, the calculation is for the first year of the deposit).
625Formula (b) can be applied in two half-years:
628 5.5 5.5 2 + 5 4
630 (= 2.75 ) (= 2.583 ...)
632 h = 2 1+ 2 1 + 12 - 1 100
633 100 100
636 = 2.666... 5.333 ... per annum paid half − yearly
638Again, use formula (d) to convert this to an annually compounded rate:
644 = 1 + - 1 100 = 5.4043...
645 2( halves) 100
648Giving an AER of 5.40% to two decimal places. The advertisement would contain a
649statement “AER calculated assuming an investment on 1 November 1999.”. If it were a