Monthly Interest Rate if Yearly rate is known

[thunderfoot]

If I know the yearly interest Rate (5%) and I want to calculate the Monthly Interest Rate ..... what's the formulae?

I know my answer will be about 0.408% (D5) as I've used 'Goal Seek' in formulae =(1+D5)^12, where the result = 105%.

I did once work-out a formulae based on the formulae shown on the keypad of a scientific calculator but I no longer have the formulae nor the calculator!!!!

 

[cmart02]

It depends on what that 5% stands for. Is it nominal or effective rate?

In you example, you seem to want the nominal monthly equivalent. In this case, you can find it out by:

=NOMINAL(5%,12)/12

So that the result of the above formula can be equated to 5% as: =(1+NOMINAL(5%,12)/12)^12-1

Also, if this is not the case, then what you're looking for is the monthly effective rate:

=EFFECT(F5/12,1)

Thus in the first case you get 0.4074% (nominal monthly equivalent, which is what you got originally) and 0.4167% (effective monthly equivalent.

 

[sweater_vests_rock]

thunderfoot.

*let m = monthly interest rate, r = yearly interest rate.*

if we assume interest compounds monthly, then we would use the formula

(1+m)^12 = (1+r)

solving this equation for m yields

m = (1+r)^(1/12) - 1.

if the interest compounds yearly, then the answer is simply

m = r/12.

hope that helps. ben.