Effective interest rate

Description

The effective interest rate, effective annual interest rate, annual equivalent rate (AER) or simply effective rate is the interest rate on a loan or financial product restated from the nominal interest rate as an interest rate with annual compound interest payable in arrears.
The effective interest rate is calculated as if compounded annually.

Related formulas

Variables

rThe effective annual rate (dimensionless)
iThe nominal rate (dimensionless)
nThe number of compounding periods per year (dimensionless)