Effective Annual Yield Rate
Effective Annual Rate is used to find out the actual annual rate that would be paid on a loan if the specified annual rate is affected by compounding.
Calculator of Effective Annual Yield Rate
2 Number of calculations
Formula of Effective Annual Yield Rate
i = [1 + (r/n)]n – 1
- r = Nominal Annual Interest Rate
- n = Number of payments per year
- i = Effective Interest Rate
Example of Effective Annual Yield Rate
Annual interest rate of a firm is 10% compounded monthly payments, then what is the effective interest rate of the firm?
Nominal Annual Interest Rate (r) = 10% = 0.1 Number of payments per year (n) = 12
Effective Interest Rate
Effective Interest Rate (i) = [1 + (r/n)]n – 1
= [1 + (0.1/12)]12 – 1
= [1 + 0.008333]12 – 1
= 1.104713063 – 1
= 0.104713063 x 100
= 10.4713 %
Effective Annual Interest Rate is 10.4713 %
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