Excel > Function References > Financial Functions

EFFECT function

Returns the effective annual interest rate, given the nominal annual interest rate and the number of compounding periods per year.

Syntax

EFFECT(nominal_rate,npery)

Argument	Description	Remarks
nominal_rate	The nominal interest rate.	If nominal_rate ≤ 0 or if npery < 1, this function returns the #NUM! error value. If this argument is nonnumeric, this function returns the #VALUE! error value.
npery	The number of compounding periods per year.	If nominal_rate ≤ 0 or if npery < 1, this function returns the #NUM! error value. If this argument is nonnumeric, this function returns the #VALUE! error value. If this argument contains a decimal value, this function ignores the numbers to the right side of the decimal point.

General remarks

EFFECT is calculated as follows:

EFFECT Equation

Example

To make the following example easier to understand, you can copy the data to a blank sheet and then enter the function underneath the data. Do not select the row or column headings (1, 2, 3... A, B, C...) when you copy the sample data to a blank sheet.

A	B
Data	Description
5.25%	Nominal interest rate
4	Number of compounding periods per year
Formula	Description (Result)
=EFFECT(A2,A3)	Effective interest rate with the terms above (0.053543 or 5.3543 percent)

See also
NOMINAL function
List of all functions (by category)

Share your feedback about this topic

Rate this content: