# Nominal Interest Rate Formula

## Formula and Use

The nominal interest rate formula calculates the annual nominal rate of interest (i), based on an effective annual rate (r). and a number of compounding periods in a year (m). ## Excel Function

The Excel NOMINAL function can be used instead of the nominal interest rate formula, and has the syntax shown below.

`i = NOMINAL(r,m)`

## Nominal Interest Rate Formula Example

If the effective rate is given as 5.116%, what is the annual nominal interest rate if compounding takes place monthly?

The nominal interest rate for the year is calculated using the nominal interest rate formula as follows:

```Nominal interest rate = i = m x ((1 + r)1/m - 1)
r = effective annual rate = 5.116%
m = compounding periods in a year = 12

Nominal interest rate = 12 x ((1 + 5.116%)1/12 - 1)
Nominal interest rate = 5.000%
```

The same answer can be obtained using the Excel NOMINAL function as follows:

```Effective annual rate = NOMINAL(r,m)
r = 5.116%
m = 12

Nominal interest rate = NOMINAL(5.116%, 12)
Nominal interest rate = 5.000%```

The nominal interest rate formula is one of many annuity formulas used in time value of money calculations, discover another at the links below.