I am trying to calculate the monthly payment of a 12% ANR loan.

My questions is: what is the correct way to convert the 12% to a monthly rate.

Most forums state that I should simply take 12% and divide by 12, or =PMT(12%/12,...).

However, I know you can also find the effective monthly rate by entering =(12%+1)^(1/12)-1.

Does anyone know which version is correct, as they yield slightly different monthly interest rates. I believe the second version is more precise, but am not certain.