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Effective Annual Rate

Effective Annual Rate is used to determine the actual annual rate that would be paid on a loan or investment if the stated annual rate is affected by compounding.

Effective Annual Rate Definition

Effective Annual Rate is the annual rate of interest that is equivalent to the nominal rate compounded more frequently.


EAR=Effective annual rate
K=Nominal interest rate
M=Compounding frequency per year


Effective Annual Rate Formula







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