Purpose
Return value
Syntax
=EFFECT(nominal_rate,npery)
- nominal_rate - The nominal or stated interest rate.
- npery - Number of compounding periods per year.
Using the EFFECT function
The EFFECT function calculates the effective annual interest rate, given a nominal interest rate and the number of compounding periods per year. Nominal interest rate is the stated rate on the financial product. Effective annual interest rate is the interest rate actually earned due to compounding. For example, with a nominal rate of 6.00% and interest compounded quarterly, EFFECT returns 6.09%:
=EFFECT(0.06,4) // returns 0.0614
In the example shown, the formula in D5, copied down, is:
=EFFECT(B5,C5)
Format the result as a Percentage to display with % symbol.
Notes
- Npery should be an integer (Excel will truncate if not).
- The nominal_rate should be a number between 0 and 1.
Purpose
Return value
Syntax
=FV(rate,nper,pmt,[pv],[type])
- rate - The interest rate per period.
- nper - The total number of payment periods.
- pmt - The payment made each period. Must be entered as a negative number.
- pv - [optional] The present value of future payments. If omitted, assumed to be zero. Must be entered as a negative number.
- type - [optional] When payments are due. 0 = end of period, 1 = beginning of period. Default is 0.
Using the FV function
The future value (FV) function calculates the future value of an investment assuming periodic, constant payments with a constant interest rate.
Notes:
Units for rate and nper must be consistent. For example, if you make monthly payments on a four-year loan at 12 percent annual interest, use 12%/12 (annual rate/12 = monthly interest rate) for rate and 4*12 (48 payments total) for nper . If you make annual payments on the same loan, use 12% (annual interest) for rate and 4 (4 payments total) for nper .
If pmt is for cash out (i.e deposits to saving, etc), payment value must be negative; for cash received (income, dividends), payment value must be positive.
