Why are the Effective Annual Rate (EAR) and Annual Percentage Rates (APR) necessary in financial discussions? Link...
Why are the Effective Annual Rate (EAR) and Annual Percentage Rates (APR) necessary in financial discussions? Link the EAR and ARP in an equation, labeling the components.
Homework Answers
EAR is necessary because APR does not paint the full picture as to the compounding frequency. Higher the compounding frequency more is the EAR. That is the reason regulations often ask the lenders to quote the rates in EAR rather than APR.
Therefore both APR and EAR are necessary as APR gives us an approximate understandable rate. When we have a period less than a year, we may use APR to discount the smaller period.
Equation:
EAR= ((1+(APR/n))^n)-1
where n is the compounding frequency
Add Answer to:
Why are the Effective Annual Rate (EAR) and Annual Percentage
Rates (APR) necessary in financial discussions? Link...
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Periodic interest rates. In the following table, , fill in the periodic rates and the effective annual rates. First, fill in the periodic rates in the following table. (Round to two decimal places.) Compounding per Year Effective APR Period Periodic Rate Annual Rate Semiannual 7% 2 Data Table (Click on the following icon 9 in order to copy its contents into a spreadsheet.) Compounding per Year Effective Period APR Periodic Rate Annual Rate Semiannual 7% 2 Quarterly Monthly Daily 8%...
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Periodic interest rates. In the following table, , fill in the periodic rates and the effective annual rates. First, fill in the periodic rates in the following table. (Round to two decimal places.) Compounding per Year Effective APR Period Periodic Rate Annual Rate Semiannual 7% 2 Data Table (Click on the following icon 9 in order to copy its contents into a spreadsheet.) Compounding per Year Effective Period APR Periodic Rate Annual Rate Semiannual 7% 2 Quarterly Monthly Daily 8%...
4. Two accounts with the same quoted annual interest rate (APR) would have: A) same effective annual rate (EAR) if they have different compounding periods in a year B) same effective annual rate (EAR) ifthey have same compounding periods in a year C) same effective annual rate (EAR) if one compounds the interest more often than the other D) different effective annual rate (EAR) if they have same compounding periods in a year
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