203
Appendix G
United Kingdom Calculations
The calculations for most financial problems in the United Kingdom are identi-
cal to the calculations for those problems in the United States – which are
described earlier in this handbook. Certain problems, however, require different
calculation methods in the United Kingdom than in the United States, even
though the terminology describing the problems may be similar. Therefore, it is
recommended that you ascertain the usual practice in the United Kingdom for
the financial problem you are solving.
The remainder of this appendix describes three types of financial calculations for
which the conventional practice differs significantly between the United King-
dom and the United States.
Mortgages
The amount of the repayments on home loans and mortgages offered by banks in
the United Kingdom can usually be calculated as described under Calculating the
Payment Amount, page 48. Building Societies in the United Kingdom, however,
calculate the amount of these repayments differently. In general, the repayment
amount of a Building Society mortgage is calculated as follows: first, the annual
repayment amount is calculated using the annual interest rate; second, the peri-
odic repayment amount is calculated by dividing the annual repayment amount
by the number of repayment periods in one year.
Furthermore, the calculations used by Building Societies are rounded; therefore,
to match their scale repayment figures you would have to round your calcula-
tions accordingly.
Annual Percentage Rate (APR) Calculations
In the United Kingdom, the calculation of the Annual Percentage Rate of Charge
(APR) in accordance with the United Kingdom Consumer Credit Act (1974) dif-
fers from the calculation of the APR in the United States. Unlike the practice in
the United States, where the APR can be calculated by multiplying the periodic
interest rate by the number of periods per year, in the United Kingdom the APR
is calculated by converting the periodic interest rate to the “effective annual
rate,” then truncating the result to one decimal place. With the periodic interest
rate in the display and in the i register, the effective annual rate can be calculated
by keying in the number of compounding periods per year, pressing w, then
proceeding with step 4 of the procedure given on page 156 for converting a nom-
inal rate to an effective rate.
