What Is the Effective Annual Rate (EAR)

question 46

Multiple Choice

What is the effective annual rate (EAR) ?

• A)the discount 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)
• B)the interest rate that would earn the same interest with annual compounding
• C)the cash flows from an investment over a one-year period divided by the number of times that interest is compounded during the year
• D)the ratio of the number of the annual percentage rate to the number of compounding periods per year

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