AER has a specific formula. To calculate the Annual Equivalent Rate the one must have two essential numbers: gross rate interest, and the number of times interest is paid during a year. After the gross interest rate that is paid over the year is divided by the number of times the interest is paid out during the year; then 1 is added; then the total is raised to the number of times the interest is paid out during the year; and after 1 is subtracted. The result is displayed in percentage.