Effective interest rate calculator

Effective annual interest rate or annual equivalent rate calculator.

Nominal annual interest rate: % per year
Compounding period:    
Compounding periods per year:    
 
Effective period interest rate: % per month
Effective annual interest rate: % per year

Effective interest rate calculation

Effective period interest rate calculation

So The effective period interest rate is equal to the  nominal annual interest rate divided by the number of periods per year  n:

Effective Period Rate = Nominal Annual Rate / n

Example 1

What is the effective period interest rate for nominal annual interest rate of 3% compounded monthly?

Solution:

Effective Period Rate = 3% / 12months = 0.03 / 12 = 0.250%

Example 2

What is the effective period interest rate for nominal annual interest rate of 7% compounded monthly?

Solution:

Effective Period Rate = 7% / 12months = 0.07 / 12 = 0.583%

Example 3

What is the effective period interest rate for nominal annual interest rate of 9% compounded monthly?

Solution:

Effective Period Rate = 9% / 12months = 0.9 / 12 = 0.750%

Effective annual interest rate calculation

So The effective annual interest rate is equal to 1 plus the nominal interest rate in percent divided by the number of compounding persiods per year n, to the power of n, minus 1.

Effective Rate = (1 +  Nominal Rate /  n)n - 1

Example 1

What is the effective annual interest rate for nominal annual interest rate of 3% compounded monthly?

Solution:

Effective Rate = (1 + 3% / 12)12 - 1

      = (1 + 0.03 / 12)12 - 1

      = 0.03042 = 3.042%

Example 2

What is the effective annual interest rate for nominal annual interest rate of 7% compounded monthly?

Solution:

Effective Rate = (1 + 7% / 12)12 - 1

      = (1 + 0.07 / 12)12 - 1

      = 0.07229 = 7.229%

Example 3

What is the effective annual interest rate for nominal annual interest rate of 9% compounded monthly?

Solution:

Effective Rate = (1 + 9% / 12)12 - 1

      = (1 + 0.9 / 12)12 - 1

      = 0.09381 = 9.381%

 

 

Effective interest rate calculation ►

 


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