Difference between revisions of "Documentation/How Tos/Calc: EFFECTIVE function"
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: returns approximately <tt>'''6.14%'''</tt>, which is the effective rate of an investment with a nominal rate of 6% per annum, compounded quarterly. | : returns approximately <tt>'''6.14%'''</tt>, which is the effective rate of an investment with a nominal rate of 6% per annum, compounded quarterly. | ||
| − | + | {{Documentation/SeeAlso| | |
| − | [[Documentation/How_Tos/Calc: EFFECT_ADD function| | + | * [[Documentation/How_Tos/Calc: EFFECT_ADD function|EFFECT_ADD]], |
| − | [[Documentation/How_Tos/Calc: NOMINAL function| | + | * [[Documentation/How_Tos/Calc: NOMINAL function|NOMINAL]], |
| − | [[Documentation/How_Tos/Calc: NOMINAL_ADD function| | + | * [[Documentation/How_Tos/Calc: NOMINAL_ADD function|NOMINAL_ADD]] |
| − | + | * [[Documentation/How_Tos/Calc: Derivation of Financial Formulas|Derivation of Financial Formulas]]''' | |
| − | [[Documentation/How_Tos/Calc: Financial functions| | + | * [[Documentation/How_Tos/Calc: Financial functions|Financial functions]] |
=== Issues: === | === Issues: === | ||
* According to the draft ODFF standard, this function will be replaced with a new '''EFFECT''' function. | * According to the draft ODFF standard, this function will be replaced with a new '''EFFECT''' function. | ||
* The calculation assumes that interest is credited at the end of exactly equal periods. In reality different quarter-years, for example, have different numbers of days. | * The calculation assumes that interest is credited at the end of exactly equal periods. In reality different quarter-years, for example, have different numbers of days. | ||
Revision as of 13:46, 25 February 2009
EFFECTIVE
Returns the effective compounded interest rate given a nominal interest rate.
Syntax:
EFFECTIVE(nom_rate; num)
- nom_rate: the nominal interest rate.
- num: the number of times interest is credited / compounded during the period that nom_rate applies to.
- If an investment has a nominal rate, say for a year, but interest is paid and credited say each quarter, the interest paid each quarter will itself start earning interest. This increases the effective value. This function returns the effective rate - that is, the rate that would have to be paid at the end of the (say) year to give the same return.
- The formula used is:
- effective_rate = (1 + nom_rate/num)num - 1
Example:
EFFECTIVE(6%; 4)
- returns approximately 6.14%, which is the effective rate of an investment with a nominal rate of 6% per annum, compounded quarterly.
{{Documentation/SeeAlso|
Issues:
- According to the draft ODFF standard, this function will be replaced with a new EFFECT function.
- The calculation assumes that interest is credited at the end of exactly equal periods. In reality different quarter-years, for example, have different numbers of days.
