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Effective Annual Interest Rate Calculator
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Effective Annual Interest Rate Calculator
This effective annual interest rate calculator helps you calculate the EAR given the nominal interest rate and number of compounding periods.
Below is a screenshot of the effective annual interest rate calculator:
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The Effective Annual Interest Rate (EAR) is the rate of interest actually earned on an investment or paid on a loan as a result of compounding the interest over a given period of time. It is usually higher than the nominal rate and is used to compare different financial products that calculate annual interest with different compounding periods – weekly, monthly, yearly, etc. Increasing the number of compounding periods makes the effective annual interest rate increase as time goes by.
An investment that is compounded annually will have an effective annual rate that is equal to its nominal rate. However, if the same investment was, instead, compounded quarterly, the effective annual rate would then be higher.
The formula for the EAR is:
Effective Annual Interest Rate = (1 + (nominal interest rate / number of compounding periods)) ^ (number of compounding periods) – 1
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Analyst Certification FMVA® Program
Below is a break down of subject weightings in the FMVA® financial analyst program. As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
A well rounded financial analyst possesses all of the above skills!
Additional Questions & Answers
CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
In order to become a great financial analyst, here are some more questions and answers for you to discover:
- What is Financial Modeling?
- How Do You Build a DCF Model?
- What is Sensitivity Analysis?
- How Do You Value a Business?
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