Related Function:

The EFFECT function returns the effective annual interest rate for a given nominal interest rate and number of compounding periods per year.

Syntax

=EFFECT(nominal_rate,npery)

Arguments

Argument Description
nominal_rate The nominal interest rate
npery The number of compounding periods per year

Examples

  A B C D
1 Data      
2 5.25% Nominal interest rate   
3 4 Number of compounding periods   
4        
5   Formula Result Notes
6   =EFFECT(A2,A3) 5.3543% Effective interest rate with the terms above

Common Function Error(s)

Problem What went wrong
#VALUE! Occurs if either of the supplied arguments is non-numeric
#NUM! Occurs if the nominal_rate argument is ≤ 0 or > 1, or if the npery argument is < 1
#NAME? Occurs when Analysis ToolPak add-in is not enabled

The Effective Annual Interest Rate is a measure of interest, that incorporates the compounding of interest and is frequently used to compare financial loans with different compounding terms. The effective annual interest rate is calculated using the following equation:

    \[ EFFECT=\left(1+\frac { nominal\_rate }{npery} \right)^{npery}-1 \]