Syntax. NOMINAL(Effect_Rate,Npery)
Definition. This function calculates the nominal interest rate which (finance mathematically) leads to equivalence from a given effective interest rate.
Arguments
Background. For various financial transactions (such as mortgage loans, building-and-loan savings, interest for certain checking accounts, current accounts, and overdraft credits), an annual interest rate is specified, but it is used only to prepare further modalities. This means that interest is paid in intra-annual periods, not annually. The interest rate used is determined by dividing the nominal interest rate by the number of periods.
So that you can compare different terms, the interest rate that returns the same result as the intra-annual interest yield with a one-time interest payment is called the effective annual interest rate. The following relationship exists between the two interest rates:
The function NOMINAL() solves this equation according to the nominal interest rate.
Examples. The following examples illustrate how to use the NOMINAL() function.
Correlation. The correlation between the nominal and effective interest rates becomes evident in the examples for the EFFECT() function.
ISMA Price and ISMA Yield. In the biannual interest payment example for the PRICE() function, the example includes a recreation of the ISMA price with the integrated Excel function. The yield must be converted with NOMINAL() before the functions can be used.
