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Excel EFFECT Function

Excel EFFECT function
Summary 

The Excel EFFECT function returns the effective annual interest rate, given a nominal interest rate and the number of compounding periods per year. Effective annual interest rate is the interest rate actually earned due to compounding. 

Purpose 
Get effective annual interest rate
Return value 
Effective annual interest rate
Syntax 
=EFFECT (nominal_rate, npery)
Arguments 
  • nominal_rate - The nominal or stated interest rate.
  • npery - Number of compounding periods per year.
Usage notes 

The EFFECT function calculates the effective annual interest rate, given a nominal interest rate and the number of compounding periods per year. Nominal interest rate is the stated rate on the financial product. Effective annual interest rate is the interest rate actually earned due to compounding.  For example, with a nominal rate of 6.00% and interest compounded quarterly, EFFECT returns 6.09%:

=EFFECT(0.06,4) // returns 0.0614

In the example shown, the formula in D5, copied down, is:

=EFFECT(B5,C5)

Format the result as a Percentage to display with % symbol.

Notes

  • Npery should be an integer (Excel will truncate if not).
  • The nominal rate should be a number between 0 and 1.

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