4 Which of the following statements is true about the effective annual rate (EAR

Question

4

Which of the following statements is true about the effective annual rate (EAR)? The EAR is the annualized interest rate using simple interest. It ignores the interest earned on interest associated with compounding periods of less than one year. The effective annual interest rate (EAR) is defined as the annual growth rates that do not take compounding into account. The EAR is the simple interest charged per period multiplied by the number of periods per year. The EAR is the interest rate actually paid (or earned) after accounting for compounding.

Explanation / Answer

THE EAR is the interest rate actually paid(or earned) after accounting for compounding.

as EAR=(1+(r/n))^n-1 takes into account compounding

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