Banking
Effective annual yield
Converts the nominal rate and compounding frequency into the true annual return.
The Formula
Effective = (1 + r / n)^n - 1
Converts the nominal rate and compounding frequency into the true annual return.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| r | Annual rate | rate | Quoted nominal rate as a decimal. |
| n | Periods per year | count | Compounding frequency. |
What Each Symbol Means
rrate
Annual rate
Quoted nominal rate as a decimal.
ncount
Periods per year
Compounding frequency.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate fd maturity page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate FD Maturity, filed under Finance. Every number the guide produces comes from substituting into this one line.