Effective Annual Rate Formula
About Effective Annual Rate Formula
The effective annual rate (EAR) is the interest rate that a borrower pays on a loan, credit card, or another type of debt. Also, when compounding effects are taken into account, the effective annual rate is the real interest return rate on a savings account. It's also known as the yield to maturity or the market rate of interest. It's also known as the annual equivalent rate or the effective rate. Because the nominal rate specifies a yearly percentage rate independent of compounding, the effective annual rate is usually higher than the nominal rate. When the number of compounding periods is increased, the effective yearly interest rate rises over time. More Maths Formulas on the parent's page.
The effective interest rate formula is as follows:
r = (1 + i/n)n -1
Where,
- r = The effective interest rate
- i = The stated interest rate
- n = The number of compounding periods per year
Download the free pdf Effective Annual Rate Formula
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