## Effective period interest rate calculation formula:

Effective Period Rate _{(%)} = Nominal Annual Interest Rate _{(%)} / N

N – number of periods per year.

**Example #1:**

Nominal Annual Interest Rate, compounded yearly = 12% (or 0.12)

So,

*N = 1*

*Effective Period Rate = 0.12 / 1 = 0.12 x 100% = 12%*

**Example #2:**

Nominal Annual Interest Rate, compounded monthly = 12% (or 0.12)

So,

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*N = 12*

*Effective Period Rate = 0.12 / 12 = 0.01 x 100% = 1%*

## Effective annual interest rate calculation formula:

Effective Rate _{(%)} = (1 + Nominal Annual interest Rate _{(%)} / N)^{N} – 1

N – number of periods per year.

**Example #3**

Nominal Annual Interest Rate, compounded monthly = 15% (or 0.15)

So,

*N = 12*

Effective Rate = (1 + 0.15 / 12)^{12} – 1 = 0.16075 x 100% = 16.08%

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