How to use the NOMINAL function
What is the NOMINAL function?
The NOMINAL function calculates the nominal annual interest rate based on the effective rate and the number of compounding periods per year.
What is the difference between the NOMINAL function and the EFFECT function?
NOMINAL function calculates the nominal annual interest rate based on the effective rate without taking compounding into account.
EFFECT function calculates the effective annual interest rate based on the nominal rate factoring in the effect of compounding periods within the year.
Knowing both rates helps properly compare interest costs and earnings on loans and investments.
What is the effective annual interest rate?
The effective annual interest rate is the actual annual interest rate earned on an investment after accounting for compounding frequency.
What is the nominal annual interest rate?
The nominal annual interest rate, also known as the stated annual interest rate, is the rate of interest quoted on an investment or loan without accounting for compounding.
It does not consider compounding periods within the year, often stated as "per annum" or "per year". If interest compounds during the year, the effective annual rate will differ from the nominal rate.
What is the number of compounding periods per year?
The number of compounding periods per year refers to how often interest is compounded annually on an investment or loan.
Some common compounding periods:
- Annually - 1 compounding period per year
- Semiannually - 2 compounding periods per year
- Quarterly - 4 compounding periods per year
- Monthly - 12 compounding periods per year
- Weekly - 52 compounding periods per year
- Daily - 365 compounding periods per year
The number of compounding periods impacts the effective annual interest rate. More frequent compounding results in higher effective rates.
NOMINAL Function Syntax
NOMINAL(effect_rate, npery)
NOMINAL Function Arguments
| effect_rate | Required. The effective interest rate. |
| npery | Required. The number of compounding periods per year. |
NOMINAL Function Example
Formula in cell B7:
NOMINAL function not working
The NOMINAL function returns:
- #VALUE! if an argument is not a numerical value.
- #NUM! if effect_rate is smaller than 0 (zero) or if npery is smaller than 1.
The npery argument is automatically converted to a whole number by removing the decimals.
The NOMINAL function is related to the EFFECT function.
Functions in 'Financial' category
The NOMINAL function function is one of many functions in the 'Financial' category.
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