What are equivalent interest rates?

This brings up the concept of equivalent interest rates, which are interest rates with different compounding that produce the same effective rate and therefore are equal to each other. After one year, two equivalent rates have the same future value. To convert nominal interest rates you need no new formula.

What is an effective annual interest rate?

In other words, the effective annual interest rate is the rate of interest that you can earn in a year after considering the compounding effect. For example, the annual equivalent rate of an investment having a nominal interest rate of 5% compounded monthly is equivalent to 5.116%. 5% compounded monthly has a periodic rate of 5/12 ≈ 0.4166%.

What is the equivalent interest rate considering the new compounding frequency?

The equivalent interest rate considering the new compouding frequency is 4.5424% Initial compounding frequency info: ■Nominal interest rate: 4.5000% ■Effective interest rate: 4.5940% ■Interest rate per period (considering m freq.): 0.3750%

How to find equivalent interest rates in Excel?

The term “equivalent rates” carries with it the same concept as “effective rates” but takes into account interest rates that are compounded more than once per year. Note that “effective rates” refer to interest rates that are compounded annually. To use Excel to find equivalent interest rates we can use the EFFECT and NOMINAL functions