The Nominal Interest Rate Calculator is used to calculate the nominal annual interest rate based on the effective annual interest rate and the number of compounding periods per year.
Nominal Interest Rate Definition
In finance and economics, nominal interest rate refers to the rate of interest before adjustment for inflation (in contrast with the real interest rate); or, for interest rates “as stated” without adjustment for the full effect of compounding (also referred to as the nominal annual rate). An interest rate is called nominal if the frequency of compounding (e.g. a month) is not identical to the basic time unit (normally a year).
The nominal interest rate is calculated in the following way, where i is the nominal rate, r the effective annual rate, and n the number of compounding periods per year (for example, 12 for monthly compounding):
i = n × ((1 + r)1/n - 1)
When the frequency of compounding is increased up to infinity the calculation will be: