# Calculating Interest with Compute Method as Canadian - Semiannual

i'm trying to validate a software Interest Calculation.

The defaults given are as followed.

``````Interval: Monthly
Nominal Annual Rate: 10%
Disbursal Amount: \$500,000
Disbursal Date 01/01/2018
Payment Date 01/02/2018
``````

So exactly one month between disbursal and payment

If the compute method is set to Normal (compound interest) The correct interest accrued is below

``````Interest Accrued for 1 month = 500,000 *.1 / 12
= 4166.67
``````

Now if I set the compute method to be Canadian and set `Canadian Basis` to Semiannual I get an interest accrued value of \$4,082.42.

I'm wondering how does one get \$4082.42 ``````500000 ((1 + 0.1/2)^(1/6) - 1) = 4082.42
``````

Canadian mortgages are compounded twice yearly. The interest rate, 10% is a nominal rate compounded semi-annually.

That is a lower rate than 10% nominal compounded monthly.

As you can see in the table here: Effective interest rate calculation

``````10% nominal compounded semi-annually =

100 ((1 + 0.1/2)^2 - 1) = 10.25% effective annual interest

10% nominal compounded monthly =

100 ((1 + 0.1/12)^12 - 1) = 10.4713% effective annual interest
``````