I. Intro

The EFFECT function is commonly used to calculate the effective annual interest rate based on the nominal interest rate and the number of compounding periods per year.

II. Explanation

•Formula: =EFFECT(nominal_rate,npery)

•Parameters:

◦nominal_rate (required): The yearly nominal interest rate.

◦npery (required): The number of compounding periods per year.

•Example: = EFFECT(3%,12)

III. Steps

Use the EFFECT function

1.Select a cell.

2.Enter formula parameters =EFFECT(3%,12) into the cell.

3.Press Enter to display the result in the cell, which is 0.030415957.

Delete the EFFECT function

Select the cell with the EFFECT function applied, and press Delete to clear the formula from the cell.

IV. Scenarios

•Finance essentials: Use the EFFECT function to quickly calculate the effective annual interest rate

When you know the nominal interest rate and number of periods per year, you can use the EFFECT function to quickly calculate the effective actual interest rate.

•Formula used in the figure below: =EFFECT(A2,B2)

•Formula parameter explanation: As shown in the figure below, you can enter the data in the corresponding parameter list to find the effective annual interest rate in one step.