Equivalent Rate(AER) Calculator online

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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%.

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