Annual Equivalent Rate (AER) Calculator

Calculate Annual Equivalent Rate (AER)



Formula

The formula to calculate the Annual Equivalent Rate (AER) is:

\[ \text{AER} = \left(1 + \frac{r}{n}\right)^n - 1 \]

Where:

Definition

Example

Let's say the stated interest rate is 5% (0.05) and the interest is compounded monthly (12 times a year). Using the formula:

\[ \text{AER} = \left(1 + \frac{0.05}{12}\right)^{12} - 1 = 0.0512 \, \text{or} \, 5.12\% \]

So, the annual equivalent rate is approximately 5.12%.