# Equivalent Rate(AER) Calculator online

Equivalent Rate Calculator | AER

# Equivalent Rate (AER)Calculator

The annual equivalent rate (AER), or effective rate, is the interest rate on a loan or is financial product .  AER is q = 1 in the equivalent interest rate . Equivalent  Rate equal to desired compounding frequency multiple number of value 1 equivalent interest rate divided to initial compounding frequency multiple initial compounding frequency divided to desired compounding frequency less than number of value 1.

Formula us,

i = q * [(1 + r/m)m/q – 1]

let us consider,

• Nominal interest rate: the nominal annual interest rate;
• Compounding frequency: the number of times compounding occurs annually. It is the frequency you would like to transform into another frequency;
• New compounding frequency;
• Equivalent interest rate; and
• Effective rate (annual equivalent rate – AER).

Calculate the Equivalent Rate

• i- nominal annual interest rate;(5%)
• m- initial compounding frequency;(150)
• q- desired compounding frequency; and(200)
• r- equivalent interest rate.(4.99979%)

AER Formula us,

r = (1 + i/m)m – 1

For example,

nominal interest rate of 2% compounded monthly is equivalent to 5.116%. 4% compounded monthly has a periodic rate .

Calculate the AER

r = (1 + i/m)m – 1

4/12 ≈ 0.3333%.After one year, the initial capital is increased by a factor of

(1 + 0.003333)12 ≈ 1.039996

AER = 3.999%.