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Financial function
EFFECT
Returns the effective annual rate given a nominal rate and compounding periods.
OccasionalDifficulty 1350 · AdvancedUsage rank #210 of 520
When to use it
The effective annual rate given a nominal rate and how many times a year it compounds.
The shape of it
- Syntax
=EFFECT(nominal_rate, npery)
Worked examples
Monthly compounding
=EFFECT(0.06,12) → 6.17%
Six percent compounded monthly.
Quarterly
=EFFECT(0.06,4) → 6.14%
Quarterly.
Daily
=EFFECT(0.06,365) → 6.18%
Daily.
Worth knowing
- Compare loans quoted with different compounding on the effective rate.
- NOMINAL reverses it.
- Continuous compounding is EXP(rate)-1.
Where it goes wrong
- #NUM! for a rate of 0 or less, or periods below 1.
- Non-integer periods are truncated.
Related
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