Question

when does the ear equal the nominal or quoted rate?

Answer 1

The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period. It is also called the effective interest rate, the effective rate or the annual equivalent rate.

Effective annual rate (EAR) can be equal to nominal or quoted rate when the compounding happens at an annual frequency.

Increasing the number of compounding periods increases the effective annual rate as compared to the nominal rate. As more frequently compounding occurs, interest is earned on interest more often and hence leads to a higher effective rate.