Home
Back
Earned Rate Formula:
| From: | To: |
Earned Rate, also known as effective interest rate, represents the actual rate of return earned on an investment over a specific period. It calculates the percentage return based on the interest earned, principal amount, and time period.
The calculator uses the Earned Rate formula:
Where:
Explanation: This formula calculates the annualized rate of return by dividing the total interest earned by the product of principal and time, then converting to percentage.
Details: Calculating earned rate helps investors compare different investment opportunities, assess investment performance, and make informed financial decisions. It provides a standardized way to evaluate returns across various time periods and principal amounts.
Tips: Enter the total interest earned in currency units, the principal investment amount in currency units, and the time period in years. All values must be positive numbers with principal and time greater than zero.
Q1: What's the difference between earned rate and nominal rate?
A: Earned rate reflects the actual return received, while nominal rate is the stated rate before considering compounding and other factors.
Q2: Can this calculator be used for monthly or daily periods?
A: Yes, but ensure time is converted to years (e.g., 6 months = 0.5 years, 90 days = 90/365 years).
Q3: What is considered a good earned rate?
A: This depends on the investment type and risk level. Generally, rates above inflation (2-3%) are desirable, with higher rates expected for riskier investments.
Q4: Does this account for compound interest?
A: This formula calculates simple earned rate. For compound interest, the calculation would be more complex and consider compounding periods.
Q5: Can I use this for loan calculations?
A: Yes, this formula works for both investment returns and loan interest rates, as it calculates the effective rate paid or earned.