EFFECT
The EFFECT function in Google Sheets is a powerful tool to calculate the annual effective interest rate based on the nominal rate and the number of compounding periods per year. It is commonly used in financial calculations and helps determine the actual interest rate earned or paid on an investment or loan.
Function Syntax and Parameters
Syntax: EFFECT(nominal_rate, periods_per_year)
Parameters:
nominal_rate: The nominal interest rate for the specified compounding periods.periods_per_year: The number of compounding periods per year.
Step-by-Step Tutorial
- Calculating the effective interest rate:
- Example: If the nominal interest rate is 5% and the number of compounding periods per year is 12, then
=EFFECT(0.05, 12)will return the effective interest rate.
- Example: If the nominal interest rate is 5% and the number of compounding periods per year is 12, then
Use Cases and Scenarios
- Investment Analysis: Determine the actual interest rate earned on an investment considering compounding periods.
- Loan Cost Evaluation: Calculate the effective interest rate to compare loan offers from different financial institutions.
Related Functions
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Related Articles
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