# Documentation/Calc Functions/EFFECT

EFFECT

## Category:

Financial Analysis

## Summary:

Calculates the effective(net) annual rate of interest on the basis of the nominal interest rate and the number of interest payments per annum.

Nominal interest refers to the amount of interest due at the end of a calculation period. Effective interest increases with the number of payments made. In other words, interest is often paid in installments (for example, monthly or quarterly) before the end of the calculation period.

EFFECT(Nom; P)

## Returns:

Returns a non-negative real number(expressed as a percentage) which is the effective annual interest rate where the nominal interest rate is Nom and the number of compounding periods per year is P.

## Arguments:

Nom is either a non-negative real number (expressed as a percentage or a fraction) or a reference to the cell containing that number which is the nominal interest rate.

P is a positive integer value or a reference to the cell containing that number which is the number of interest payment periods per year.

• If Nom is less than 0 then the function returns an error value.
• If P is not an integer value, then it is truncated to an integer.
• If after truncation P is less than 1 then the function returns an error value.

• The formula for EFFECT is:

where Rate is Nom and Payments is P.

## Examples:

Formula Description Returns
=EFFECT(9.75%;4) If the annual nominal interest rate is 9.75% and four interest calculation periods are defined, then the function finds what is the actual interest rate (effective rate). 10.11%
=EFFECT(0.55;2) If the annual nominal interest rate is 55% and two interest calculation periods are defined, then the function finds what is the actual interest rate (effective rate). 62.56%
=EFFECT(0;100) If the annual nominal interest rate is 0% and hundred interest calculation periods are defined, then the function finds what is the actual interest rate (effective rate). 0.00%
=EFFECT(500%;100) If the annual nominal interest rate is 500% and hundred interest calculation periods are defined, then the function finds what is the actual interest rate (effective rate). 13050.13%
=EFFECT(0.5;0.9) The function returns an error value since P is less than 1. Err:502

EFFECT