The AER is the rate an investor can expect to earn from an investment after compounding the interest annually. In order to calculate the AER, you need to firstly, divide the gross interest rate by the number of times a year that interest is paid and then add one. After this whatever result comes put it in the power to the number of times a year that interest is paid. Lastly, subtract one from the final result and you will get the AER. The formula of AER is : (1+r/n)^n) -1
Please watch the video below to understand it through an example.