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Excel EFFECT function

The EFFECT function calculates the effective annual interest rate for a given nominal annual interest rate and number of compounding periods per year.

Syntax

EFFECT(nominal_rate, npery)

Arguments

Nominal_rate (Required): The nominal interest rate (It should be given as a percentage or a numeric value between 0 and 1);
Npery (Required): The number of compounding periods per year.

Remarks

1. If the “npery” is a decimal, it will be truncated to an integer;
2. The #NUM! error occurs when one of the following condition is met:
-- The “nominal_rate” is less than or equal to 0;
-- The “npery” is less than 1.
3. The #VALUE! error occurs if one or both of the arguments are non-numeric;
4. This function is calculated using the following equation:

Return Value

It returns a decimal value.

Example

As shown in the screenshot below, there are two columns separately containing the nominal interest rates and the number of compounding periods per year. To calculate the corresponding effective interest rates, you need to do as follows.

1. Select a blank cell (here I select cell D6), copy or enter the formula below and press the Enter key to get the result. Select this result cell and then drag its AutoFill Handle down to get other results.

=EFFECT(B6,C6)

2. Then you need to change the cell format to percentage.

2.1 Select all result cells, right click and select Format Cells from the context menu;
2.2 In the Format Cells dialog box, under the Number tab, select Percentage in the Category list box, specify the Decimal places and finally click the OK button to save the changes.

Then you can see the effective interest rates are displayed as follows.


Related Functions

Excel NOMINAL function
The NOMINAL function calculates the nominal annual interest rate for a given effective interest rate and the number of compounding periods per year.


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