Explain the Difference Between the Effective Annual Rate (EAR)and the Annual

question 105

Essay

Explain the difference between the effective annual rate (EAR)and the annual percentage rate (APR).Of the two,which one has the greater importance and why?

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Definitions:

Deducted

Removed or taken away from a total amount or sum, often referring to expenses subtracted from income before taxation.

Net Income

The net profit for the company, arrived at after taking away all forms of expenses and taxes from the generated total revenue.

Net Cash Flow

This measures the amount of cash generated or used by a business in a given period, taking into account cash inflows and outflows.

Accrued Liabilities

Liabilities that have been incurred but not yet paid or recorded in the financial statements.