The `NOMINAL` function in Excel is used to calculate the nominal interest rate given an effective interest rate and the number of compounding periods per year. This function is particularly useful in finance for converting an effective interest rate, which accounts for compounding, to a nominal rate that is often quoted by financial institutions.
Syntax
NOMINAL(effect_rate, npery)
- effect_rate: The effective annual interest rate. This must be a positive numeric value.
- npery: The number of compounding periods per year. This must be a positive integer.
Example Usage
=NOMINAL(0.06, 4)
- Suppose you want to find the nominal interest rate equivalent to an effective interest rate of 6% compounded quarterly. You would use the `NOMINAL` function as follows:
In this example:
=NOMINAL(0.05, 12)
- If the effective annual rate is 5% and you want to know the nominal rate with monthly compounding, you would enter:
Points to Remember
- The result from the `NOMINAL` function will be a decimal value. To convert it to a percentage, you can format the cell as a percentage or multiply the result by 100.
- Always ensure that your effective rate is expressed as a decimal in the function (e.g., use 0.05 for 5%).
- Make sure the `npery` parameter is a whole number corresponding to how often the compounding period occurs in a year.
By using the `NOMINAL` function, you can easily convert effective rates to nominal rates for better comparison and understanding of financial terms.
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