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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.
Stapsgewijze handleiding
- 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
Uitgewerkte voorbeelden
Invoer
12% nominal, monthly compounding
Resultaat
EAR = 12.68%
(1 + 0.12/12)^12 − 1
Invoer
12% nominal, daily compounding
Resultaat
EAR = 12.75%
(1 + 0.12/365)^365 − 1
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