Syntax
EFFECT(nominal_rate, npery)
| Parameter | Description |
|---|---|
| nominal_rate | Parameter of the EFFECT function. |
| npery | Parameter of the EFFECT function. |
Examples
Monthly compounding
Formula
=EFFECT(0.06, 12)
6.17%. A 6% nominal rate compounded monthly produces an effective annual rate of about 6.17%.
Daily compounding
Formula
=EFFECT(0.05, 365)
5.13%. A 5% nominal rate compounded daily yields an effective rate of 5.13% — slightly higher than monthly compounding.
Quarterly vs monthly comparison
Formula
=EFFECT(0.08, 4)
8.24%. An 8% rate compounded quarterly has an effective rate of 8.24%. Compare this to =EFFECT(0.08, 12) which gives 8.30%.
Common Errors
#NUM!
The nominal rate is negative, or npery (compounding periods per year) is less than 1.
#VALUE!
An argument is non-numeric.
Tips
Compare apples to apples
Banks advertise nominal rates, but the effective rate is what you actually earn or pay. Always convert to effective rates before comparing financial products.
APR vs APY
The nominal rate is essentially the APR (Annual Percentage Rate). EFFECT converts it to APY (Annual Percentage Yield). APY is always equal to or higher than APR.
Use NOMINAL for the reverse
If you know the effective rate and need the nominal rate, use NOMINAL(). They are inverse functions of each other.
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