effrr

Effective rate of return

Syntax

Return = effrr(Rate,NumPeriods)

Description

Return = effrr(Rate,NumPeriods) calculates the annual effective rate of return. Compounding continuously returns Return equivalent to (e^Rate-1).

Examples

Compute the Annual Effective Rate of Return

This example shows how to find the effective annual rate of return based on an annual percentage rate of 9% compounded monthly.

Return = effrr(0.09, 12)

Return = 
0.0938

Input Arguments

Rate — Annual percentage rate

scalar numeric decimal

Annual percentage rate, specified as a scalar numeric decimal.

Data Types: double

NumPeriods — Number of compounding periods per year

scalar integer

Number of compounding periods per year, specified as a scalar integer.

Data Types: double

Output Arguments

Return — Annual effective rate of return

scalar numeric decimal

Annual effective rate of return, returned as a scalar numeric decimal.

More About

Effective Rate of Return

The effective rate of return (ERR) is a measure of the actual return on an investment, taking into account the effects of compounding over a specific period.

The ERR provides a more accurate representation of the profitability of an investment compared to nominal interest rates, which do not consider compounding effects. The effective rate of return is particularly useful for comparing different investment options with varying compounding periods.

Version History

Introduced before R2006a