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.

Understand the concept of cost pools and how they are used in overhead allocation.

Understand the concept of faithful representation in accounting.

Recognize the difference between accounting rules for financial reporting and taxation in the United States.

Identify the bodies responsible for setting generally accepted accounting principles (GAAP) and their role.

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Definitions:

Alternatives

Different options or choices available in a decision-making process that can be considered when planning strategies or solving problems.

Systematically Evaluating

The process of methodically assessing or examining something to determine its value, effectiveness, or significance based on set criteria.

Measurement

The process of quantitatively assessing or determining the magnitude, amount, or degree of something.

Calculation

The process of using mathematical techniques to determine a numerical result or assess a financial situation.