EFFECTIVE_RATE Function
Evaluates the effective annual interest rate.
Usage
result = EFFECTIVE_RATE(nominal_rate, n_periods)
Input Parameters
nominal_rate—The interest rate as stated on the face of a security.
n_periods—Number of compounding periods per year.
Returned Value
result—The effective annual interest rate. If no result can be computed, NaN is returned.
Input Keywords
Double—If present and nonzero, double precision is used.
Discussion
Function EFFECTIVE_RATE computes the continuously-compounded interest rate equivalent to a given periodically-compounded interest rate. The nominal interest rate is the periodically-compounded interest rate as stated on the face of a security.
It can found by solving the following:
Example
In this example, EFFECTIVE_RATE computes the effective annual interest rate of the nominal interest rate, 6%, compounded quarterly.
PRINT, EFFECTIVE_RATE(0.06, 4)
; PV-WAVE prints: 0.0613635
