EFFECTIVE( ) function

Returns the effective annual interest rate on a loan.

Syntax

EFFECTIVE(nominal_rate, periods)

Parameters

Name	Type	Description
nominal_rate	numeric	The nominal annual interest rate.
periods	numeric	The number of compounding periods per year. Note Specify an integer. If you specified a decimal portion, it is truncated.

Output

Numeric. The rate is calculated to eight decimals places.

Examples

Basic examples

Returns 0.19561817 (19.56%), the effective annual rate of interest on the unpaid balance of a credit card that charges 18% per annum, compounded monthly:

EFFECTIVE(0.18, 12)

Remarks

What is the effective annual interest rate?

The effective annual interest rate on a loan is the actual annual rate of interest paid, taking into account interest on the remaining balance, compounded monthly or daily.

Related functions

The NOMINAL( ) function is the inverse of the EFFECTIVE( ) function.