The Excel NOMINAL function is a Financial formula that calculates and returns the nominal annual interest rate, for a given effective annual interest rate and number of compounding periods per year. The nominal annual interest rate is used for calculating financial loans and investments with different compounding terms. Compounding power of rates can be a powerful tool, and this function is especially useful in comparing different interest rates. In this guide, we’re going to show you how to calculate nominal interest rate in Excel using the NOMINAL function, and also go over some tips and error handling methods.
- All Excel versions
Excel NOMINAL Function Syntax
|effect_rate||The effective interest rate between 0 and 1.|
|npery||The number of compounding periods per year.|
How to calculate NOMINAL interest rate in Excel
The NOMINAL formula calculates the nominal annual interest rate, for a given effective annual interest rate and number of compounding periods per year. The nominal interest rate is the interest rate before taking inflation or any other factors into account. The effective annual interest rate is the actual interest rate earned due to compounding. For example, the nominal annual interest rate of an effective rate of 12.36% is actually 12.00% when compounded semi-annually instead of annually:
- Excel truncates the npery to an integer.
- You can use the EFFECT function to calculate the effective annual interest rate with a given nominal interest rate and number of compounding periods per year.
- The relationship between the NOMINAL and the EFFECT functions is (1 + (nominal_rate / npery)) * npery – 1.
- If the effect_rate ≤ 0 or npery < 1, the NOMINAL function returns the #NUM! error value.