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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.
ଷ୍ଟେପ୍-ଷ୍ଟେପ୍ ଗାଇଡ୍ |
- 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
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ଇନପୁଟ୍
12% nominal, monthly compounding
ଫଳ
EAR = 12.68%
(1 + 0.12/12)^12 − 1
ଇନପୁଟ୍
12% nominal, daily compounding
ଫଳ
EAR = 12.75%
(1 + 0.12/365)^365 − 1
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