EFFECT function

This article describes the formula syntax and usage of the EFFECT function in Microsoft Excel.

Description

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)

The EFFECT function syntax has the following arguments:

  • Nominal_rate    Required. The nominal interest rate.

  • Npery    Required. The number of compounding periods per year.

Remarks

  • Npery is truncated to an integer.

  • If either argument is nonnumeric, EFFECT returns the #VALUE! error value.

  • If nominal_rate ≤ 0 or if npery < 1, EFFECT returns the #NUM! error value.

  • EFFECT is calculated as follows:

    Equation

  • EFFECT (nominal_rate,npery) is related to NOMINAL(effect_rate,npery) through effective_rate=(1+(nominal_rate/npery))*npery -1.

Example

Copy the example data in the following table, and paste it in cell A1 of a new Excel worksheet. For formulas to show results, select them, press F2, and then press Enter. If you need to, you can adjust the column widths to see all the data.

Data

Description

0.0525

Nominal interest rate

4

Number of compounding periods per year

Formula

Description

Result

=EFFECT(A2,A3)

Effective interest rate with the terms above

0.0535427

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