Daily DAX : Day 72 NOMINAL
The NOMINAL function in Power BI's Data Analysis Expressions (DAX) language is used to calculate the nominal annual interest rate, given the effective annual interest rate and the number of compounding periods per year.
Syntax:
dax
NOMINAL(effect_rate, npery)
effect_rate: This is the effective interest rate. It's the actual interest earned or paid in a year, after accounting for compounding.
npery: This stands for "number of periods per year", which indicates how many times the interest is compounded within a year.
Explanation:
Nominal Interest Rate: This is also known as the stated or annual percentage rate (APR). It does not take into account the effects of compounding within the year.
Effective Interest Rate: This rate considers the effect of compounding. If interest is compounded more than once a year, the effective rate will be higher than the nominal rate.
Calculation:
The formula for converting from an effective rate to a nominal rate in DAX is:
Nominal Rate=(1+Effective Raten)n−1
where n is the number of compounding periods per year.
Main Use Case:
Financial Analysis:
Loan Analysis: When you know the effective rate of a loan but need to compare it with other loans listed with their nominal rates, you can use NOMINAL to convert the effective rate back to a nominal rate for comparison.
Investment Comparison: If you're comparing different investment vehicles where rates are given in different terms (effective vs. nominal), this function helps in standardizing these rates for better comparison.
Banking and Finance:
Banks or financial advisors might use this function to explain to clients how the compounding frequency affects the interest rate they see on their savings or loans.
Regulatory and Compliance Reporting:
In scenarios where financial products must be advertised with specific rate types (e.g., nominal rates for transparency), converting from an effective rate to a nominal one might be necessary.
Here's a quick example in DAX:
dax
NominalRate = NOMINAL(0.0618, 12)
If you have an effective rate of 6.18% with monthly compounding (12 periods per year), this function would return the nominal annual interest rate.
This function helps in financial modeling within Power BI to ensure that all interest rates are compared on an equal footing, considering the impact or lack thereof of compounding.
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