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This article provides detailed guidance on how to use the EFFECT Function - a powerful tool for calculating the real annual interest rate, greatly benefiting accounting and office professionals.
Description: The EFFECT function helps you calculate the actual interest rate to be paid each year.
Syntax: EFFECT (nominal_rate, npery).
Inclusions:
- Nominal_rate: Annual nominal interest rate, a required parameter.
- Npery: Number of compounding periods per year, a required parameter.
Note:
- The formula for the EFFECT function is as follows:
- All parameters must be numerical values, otherwise the function will return the error #NUM!.
- If either of the two parameters is less than 0 => The function returns the error value #NUM!.
- In case Npery is a decimal number, the function will take the integer value of Npery.
Example:
Calculate the interest rate for various investments with the following dataset.
In the cell where you want the result, enter the following formula: =EFFECT(D6,D7).
After pressing Enter, the result will be:
Thus, nominally you have to pay interest at 0.06%, but in reality, you have to pay an annual interest of 0.06090 => additional charges incurred.
Above is the detailed guide on how to use the EFFECT function. Hope you calculate accurately and obtain investments with the lowest interest rates.
Wishing you all success!
