Microsoft financial examples generally reference a nominal annual interest rate. When you want to apply this rate in a financial function, you must calculate an effective rate for the given period.
For example, a 12% annual rate is given, and you want a monthly payment. The effective period rate in the United States is 12% divided by 12 months, to yield a 1% monthly effective rate. Other countries may have a different monthly effective rate, depending on their laws.
Example 1: United Kingdom
In the United Kingdom, all rates are considered effective rates. A 12% annual rate does not yield a 1% monthly effective rate. Instead, the 12% annual rate requires a conversion to find the effective monthly rate. One method to calculate this is to convert the 12% effective annual rate to a nominal annual rate, and then divide by 12 to get a monthly rate. To do this, you can use the NOMINAL function:
=NOMINAL(Effective_Annual_Rate,Periods_Per_Year)
That is
=NOMINAL(12%,12)
which yields 11.3866% nominal annual interest.
If you divide 11.3866% by 12 months per year, it yields 0.9489% monthly effective interest, as opposed to the 1% effective monthly interest in the United States.
Example 2: Canada
In Canada, the computation is a bit more involved. Canadian law permits a compounding frequency of 2 per year, even though there may be 12 payments per year. When you compute the effective rate for Canada, use a frequency factor of 2 to compute effective period rate and payments, as follows:
=(1+NOMINAL/FREQUENCY)^( FREQUENCY/NUMBER_OF_PAYMENTS)-1
Where
NOMINAL = 12%
FREQUENCY = 2
NUMBER_OF_PAYMENTS =12
That is
=(1+0.12/2)^(2/12)-1 = 0.9759%
Notice that in Canada, a 12% nominal interest rate is equivalent to 0.9759% effective monthly interest, not the 1% effective monthly interest as in the United States.