I agree that EFFECT and NOMINAL are simple ways of converting to/from effective
interest rates, but I find people understand much more quickly when I use my
future value example. As soon as they calculate the future value of $100, they
say "now I understand how compound interest works."

--
Regards,
Fred


"Dana DeLouis" wrote in message
...
Hi. Just two cents:
=Effect(14.9%,12)
returns 15.961%

We note the equation for Effective monthly rate from above...
=(1 + 14.9%/12)^12 - 1

We note that as the time period tends towards infinity, the above equation
reduces to:

=EXP(14.9%)-1
16.067%

--
Dana DeLouis
Win XP & Office 2003


"Fred Smith" wrote in message
...
To calculate an effective annual rate, ask the question "if I borrowed $100
at the start of the year, made no payments, how much would I owe at the end
of the year?". If interest is compounded monthly, the answer is:

=FV(14.9%/12,12,0,-100) = 115.961

You now know that 14.9% compounded monthly is the same as 15.961% compounded
annually. 14.9% compounded daily is an effective annual rate of 16.06%. As
you can see, the compounding period has a significant effect on the actual
interest being charged.

--
Regards,
Fred


"dwe" wrote in message
...

Hi Bruno and Joe - many thanks for the responses ...

Wow, well I am lost somewhat ... but will keep going ...

Bruno - how do you arrive at 15.961% annual rate - when the interest
said to be charged by the bank is 14.9% ...

MTIA

Darrin


--
dwe
------------------------------------------------------------------------
dwe's Profile:
http://www.excelforum.com/member.php...o&userid=27914
View this thread: http://www.excelforum.com/showthread...hreadid=490382