What is the maths formula for the annual effective rate?
------ Eq 1 The annual effective interest rate, re, is actually the ratio of the amount of interest earned during a year to the amount of principal outstanding at the beginning of the year. The above equation, Eq 1, shows the relation between the effective rate and nominal rate. So, if you have a monthly-rest loan with an interest rate of 5% p.a., to find the annual effective rate you first define An important point to note is that the effective rate is always larger than the nominal if compounding is done more than once a year, m > 1. For a daily compounding loan, m = 365, and Table 1 presents the effective rate across the three different rests:Table 1
Type of loan |
Effective rate (%) |
Daily-rest with daily instalments |
5.13 |
Monthly-rest with monthly instalments |
5.12 |
Annual-rest with annual instalments |
5.00 |
What is the maths formula for the annual nominal rate?
Conversely, if you have the effective rate, but wish to find the nominal. You can use the below formula: ----- Eq 2 Using the same example, and inserting the values into Eq 2: we obtain the nominal rate of 5%, as expected.What are the Excel functions?
Instead of doing the computation with a calculator, you can let Excel do it for you.Table 2: Maths Formulas and Excel Functions
Maths Formula | Excel Function |
= EFFECT (nominal_rate, npery) | |
= NOMINAL (effect_rate, npery) |
Figure 1
Next, you click on Excel Options, and a window will then pop up as in Figure 2.Figure 2
Select Add-Ins, and this will bring you to the next screen:Figure 3
Under “Manage”, make sure “Excel Add-ins” is selected than click Go... The Add-Ins window will appear as seen in Figure 4.Figure 4
Mark the check-box for “Analysis ToolPak” and click OK. Now you are all set to use the EFFECT and NOMINAL functions!About Property Buyer http://www.PropertyBuyer.com.sg/mortgage We are a research-focused Singapore mortgage consultancy which helps you compare Singapore home loans either for new loans or refinancing. We use loan reports from Singapore's best loan analysis system (exclusive to us) at http://www.icompareloan.com/consultant/ to serve our customers. Our services are completely FREE to you as the banks pay us a referral fee upon loan disbursement. SMS: (65) 9782 8606 Email: loans@PropertyBuyer.com.sg