Purpose
Return value
Syntax
=EFFECT(nominal_rate,npery)- nominal_rate - The nominal or stated interest rate.
- npery - Number of compounding periods per year.
How to use
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.
EFFECT function examples
Effective annual interest rate
Related functions
NOMINAL Function
The Excel NOMINAL function returns the nominal interest rate when given an effective annual interest rate and the number of compounding periods per year. The effective rate is the actual rate due to compounding. The nominal rate is typically the stated rate.
