Annual Equivalent Rate...

[Marcus Fox]

Many banks give the AER as the rate as if a nominal rate is paid daily and
compounded for a year. For example, the principal is 10,000, the AER 7.2%
and the total after one year would be 10,000 + (10,000 * 0.072) = 10,720.

How do I use an equation to find the nominal rate, which is the interest
paid daily if the AER is a given percentage?

Marcus

 

[Marcus Fox]

Many banks give the AER as the rate as if a nominal rate is paid daily and
compounded for a year. For example, the principal is 10,000, the AER 7.2%
and the total after one year would be 10,000 + (10,000 * 0.072) = 10,720.

How do I use an equation to find the nominal rate, which is the interest
paid daily if the AER is a given percentage?

Marcus

Forgot to add that I tried using NOMINAL, but can't use it as it wasn't
installed, and I am not able to install it.

Marcus

 

[ziak]

You need the Analysis ToolPak add-in for this. If you can't install it, I
can give you the formula and or you can get a good finance calculator (HP 12C
is a good one). The answer to your question, however, is 6.95%, which is the
nominal on an effect of 7.2% compunded daily. You can use the following
formula:

Effect = [1+ (Nom/#Per)] ^ #Per - 1

solve for Nom. sorry could not be of more help.

 

[joeu2004]

Many banks give the AER as the rate as if a nominal rate
is paid daily and compounded for a year. For example, the
principal is 10,000, the AER 7.2% and the total after one
year would be 10,000 + (10,000 * 0.072) = 10,720.
How do I use an equation to find the nominal rate, which
is the interest paid daily if the AER is a given percentage?

=rate(365,, -1, 1+7.2%)

is the daily rate. Multiply by 365 for the nominal annual rate.

Note: In the US, it is customary for banks to use 365 for the
number of days per year. I do not know the custom in your
country.

 

[Marcus Fox]

=rate(365,, -1, 1+7.2%)

is the daily rate. Multiply by 365 for the nominal annual rate.

Note: In the US, it is customary for banks to use 365 for the
number of days per year. I do not know the custom in your
country.

Thanks very much for that. In my country I believe the custom is for the
banks to count how many days between identical dates in two consecutive
years. Normally 365 days of interest, but if a leap year then 366.

Marcus

 

[DJH]

Try
=NOMINAL(0.072,365)
returns the approx. APR.

To get AER
Try
(1+APR/365)^365-1