The Excel EFFECT function is used to calculate the effective annual rate from the nominal annual rate based on the number of compounding periods in a year. The effective annual rate allows for compounding, whereas the nominal annual rate does not allow for compounding.
The effective interest rate formula calculates the rate of interest for a year based on a nominal rate (i) compounded a number of times a year (m). The formula for annual interest rate is sometimes referred to as the annual equivalent rate formula or AER formula.
Effective Annual Rate Formula November 6th, 2016Team
The net present value of a series of cash flows is the sum of the present values of each of the cash flows. The internal rate of return (IRR) is the discount rate which will produce a net present value (NPV) of zero.
IRR Internal Rate of Return November 6th, 2016Team