Question

In most cases a paragraph or so for each question will be sufficient. For problems, show...

In most cases a paragraph or so for each question will be sufficient. For problems, show your work such as calculator inputs and outputs for full credit.

  1. What is an EAR, and how is it computed?

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Answer #1

Effective Annual Rate(EAR)

The EAR is the rate of interest actually earned on an investment or paid on a loans as a result of compounding the interest over a given period of time.It is actually higher than the nominal rate and is used to compare different financial products that calculate annual interest with different compounding periods-Weekly,monthly,yearly,etc.

EAR=[1+(Nominal Interest Rate/no. of compounding period)]^no. of compounding period-1

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