Microsoft Excel is a handy software. We use **Excel functions** for our education, business, and financial analyses. Moreover, in light of the effective rate and the number of compounding periods per year calculating the nominal annual interest rate, we thoroughly use **Excel NOMINAL function**. With this in mind, we are going to learn **how to use the NOMINAL function in Excel** with an example.

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## Introduction to NOMINAL Function

The Excel Financial functions section includes **the NOMINAL Function**. It determines the number of compounding periods per year and the nominal annual interest rate for a given effective interest rate. Alternatively, **the NOMINAL function** is **the** **EFFECT** **function’s** inverse calculation. The following equation describes their relation.

Where

= The nominal annual interest rate.*Nominal Rate*The number of compound periods per year.**Npery**=

Therefore, **NOMINAL** determines the number of **compounding periods** per year and the **nominal annual interest rate** for a declared **effective interest rate**. When the effective rate and the number of compounding years are provided, the function will return the nominal yearly interest rate. In financial analysis, we frequently compare multiple bonds, therefore we’re curious to know which one offers the best overall return. Moreover, **the NOMINAL function** can be useful when comparing two bonds, one of which advertises a real interest rate and the other a nominal rate.

**Syntax:** The syntax of

**the NOMINAL function**is as follows:

`=NOMINAL(effect_rate, npery)`

__Arguments Explanation:__

Arguments | Required or Optional | Explanation |
---|---|---|

effect_rate | Required | A numeric value between 0 & 1 or a percentage. |

npery | Required | The number of compound periods per year. |

**Return Value:** Returns the nominal annual interest rate.

__Notes__**Office 365**version.

**The NOMINAL function**is available from

**Excel 2000**to the present version.

## Practical Example of Calculating Nominal Interest Rate Using NOMINAL Function

Calculating the annual nominal interest rates can be cumbersome if we have a large dataset. However, with the help of **the NOMINAL function**, we can determine them quickly and effectively. After we obtain the decimal values as outputs, we will format them in percentages using the **Format Cells** feature. Let’s get into it. To demonstrate, we take a dataset that represents annual nominal rates and periods of a credit bank.

### Step 1: Create Dataset with Proper Parameters

The first step aims to introduce a proper dataset with correct information. Let’s add the following sub-headings as follows.

- Include the headers
**Effective Rate**,**Compound Periods**, and**Nominal Rate**in columns**B**,**C**, and**D**respectively. - Afterward, populate the headers with the correct values.
- Thus, we obtain our desired dataset.

**Read More: ****How to Use NPER Function in Excel (3 Relevant Examples)**

### Step 2: Apply NOMINAL Function

The objective of the second step is to utilize **the NOMINAL function** for the given values. As already discussed, the function determines the nominal interest rate and returns a decimal. Therefore, let’s follow the instructions below to implement the function properly.

- First, type the following formula in cell
**D5**,

`=NOMINAL(B5,C5)`

- Later, press the
**Enter**or**Tab**keys.

- As a result, we get an output in
**D5**. - Next, use the
**AutoFill tool**to drag the output cell down. - Hence, we obtain our desired nominal rates in our dataset.

**Note:**

- The
**Effective rate**should be between**0**and**1**. - The
**Compound Periods**have to be an Integer. If not, Excel will truncate the inputs.

**Read More: ****How to Use RRI Function in Excel (5 Suitable Examples)**

### Step 3: Use Format Cells Feature

In our last step, we will format the previously obtained decimal into percentages. To illustrate, we will use the **Format Cells** feature in Excel. To do so, follow the easy procedure below.

- First, select the range
**D5:D10**and right-click on the selected range.

- Consequently, a context menu pops up.
- There, locate the
**Format Cells**option and tap on it.

- Subsequently, the
**Format Cells**dialog box appears. - Further, go to
**Number → Percentage**and then set the**Decimal places**to**2**. - Lastly, click
**OK**to complete the formatting.

- Finally, we can see the effective rates in our display.

**Read More: ****XIRR vs IRR in Excel (Differences with Examples)**

## Reasons Behind NOMINAL Function Not Working in Excel

The common errors likely to appear are as follows.

**#NUM!**appears if the given**effective rate**is**≤ 0**.**#NUM!**also shows up if the given**Npery**is**< 1**.**#VALUE!**pops up if we input**non-numeric**values.

## Conclusion

In conclusion, we have discussed some easy steps of how to use **the** **NOMINAL function** in Excel with an example. Not to mention, our **ExcelDemy website** shows various simple problem-solving methods like this. Please, leave any further queries or recommendations in the comment box below.