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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Definitions:

Subsidiary

A company that is controlled by another company, known as the parent company, through the ownership of more than half of its voting stock or through other means of control.

Intangible Assets

Assets that lack physical substance but provide economic benefits to a company, such as trademarks, patents, and copyrights.

Impairment

The reduction in the recoverable value of an asset below its carrying amount on the balance sheet.

Indefinite Useful Lives

An accounting classification for intangible assets that are not expected to expire or have an end to their useful economic life.