Effective Annual Rate Calculator


Instructions: Use this Effective Annual Rate Calculator to compute the effective annual rate (EAR) by indicating the yearly the interest rate (\(r\)) and the type of compounding (yearly, bi-yearly, quarterly, monthly, weekly, daily or continuously):

Yearly Interest Rate \((r)\) =
Compounding Period:

Effective Annual Rate Calculator

More about the this EAR calculator so you can better use this solver: The effective annual rate (\(EAR\)) corresponds to the actual rate that is carried by a nominal annual rate (\(r\)). The difference between the nominal annual rate \(r\) and the effective annual rate \(EAR\) is due to the fact that for the \(EAR\) there is a number of compounding periods. For discrete compounding, the following formula is used:

\[ EAR = \left( 1+\frac{r}{k}\right)^{ k} - 1 \]

For continuous compounding, we get that \(k \to \infty\), in which case we need to use the following formula instead.

\[ EAR = e^{r} - 1 \]

How to compute the effective annual rate excel?

For example, assume that the nominal rate is \(r = 10\%\) and the compounding is done monthly, so the number of compounding periods is \(k = 12\). The following formula needs to be used in Excel to get the effective annual rate: =FV(10%/12, 12, 0, -1)-1, which would yield a EAR of 10.47%.

How do you calculate the effective interest rate on a loan?

This is the same way you would calculate effective interest rate on a loan: You would take your nominal rate of \(r\), and the number of compounding periods is \(k = 12\), and you would use the Excel formula =FV(r/k, k, 0, -1)-1. Or you could use our calculator, which will provide you will all the steps in the calculator.

You may be interested in computing other financial rates, such as the yield to maturity, for example.




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