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Effective Annual Rate (EAR), also called Annual Equivalent Rate (AER), is the actual annual interest rate accounting for compounding within the year. It allows comparison of loans or investments with different compounding frequencies.
Guida passo passo
- 1EAR = (1 + r/n)^n − 1
- 2r = nominal (stated) annual rate, n = compounding periods per year
- 3Daily compounding always gives a higher EAR than monthly, which is higher than annual
- 4APY (Annual Percentage Yield) on savings accounts IS the EAR
Esempi risolti
Ingresso
12% nominal, monthly compounding
Risultato
EAR = 12.68%
(1 + 0.12/12)^12 − 1
Ingresso
12% nominal, daily compounding
Risultato
EAR = 12.75%
(1 + 0.12/365)^365 − 1
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