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.
