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