Conversion of a nominal interest rate into an effective interest rate formula

Tags: interest rates methodology time value of money

Description of the Conversion of a nominal interest rate into an effective interest rate formula

Formula for the conversion of a nominal interest rate into an effective interest rate.

r_{E} = {(1 + \frac{r}{n})}^{n} - 1

n

Number of payments per year

r

Nominal annual interest rate