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How to calculate Effective annual rate

The Effective annual rate formula, with plain worked examples you can check yourself.

Effective annual rate = ((1 + r ÷ m)^m − 1) × 100

The result is a percentage (%).

Worked examples

r = 60% · m = 2Effective annual rate = 69%
r = 20% · m = 2Effective annual rate = 21%
r = 30% · m = 3Effective annual rate = 33.1%

How to use it

  1. Write down the values for each letter in the formula.
  2. Do the brackets first, then divide or multiply.
  3. Multiply by 100 to show the answer as a percentage.
  4. Compare the answer with last period or with a competitor to see if it is good or bad.

This formula belongs to Investing & Returns.

Related terms

DividendBondHedgingArbitrageLeverageAsset allocation

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