What Is the Effective Annual Rate (EAR)

question 83

Multiple Choice

What is the effective annual rate (EAR) ?

• A) It is the interest rate that would earn the same interest with annual compounding.
• B) It is the ratio of the number of the annual percentage rate to the number of compounding periods per year.
• C) It is the interest rate for an n-year time interval, where n may be more than one year or less than or equal to one year (a fraction).
• D) It refers to the cash flows from an investment over a one-year period divided by the number of times that interest is compounded during the year.

---

Definitions:

Casualty Losses

Financial losses resulting from sudden, unexpected events like natural disasters, accidents, or thefts, potentially deductible under tax laws.

Deductible

is an amount that can be subtracted from an individual's gross income for tax purposes, reducing the taxable income.

Personal

Relating to private individuals, their characteristics, or their circumstances without pertaining to their professional or public lives.

State And Local Income Taxes

Taxes imposed on income by state and/or local governments, varying greatly from one location to another.