Effective Annual Rate(EAR) Calculator
This ear calculator is used to finds the interest rate adjusted for compounding over a given compounding period.
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Formula for Effective Annual Interest Rate(EAR) :
The Effective Annual Interest Rate is also known as the effective interest rate, effective rate, or the annual equivalent rate.
The Effective Annual Rate (EAR) is the interest rate that is adjusted for compounding over a given period. Simply put, the effective annual interest rate is the rate of interest that an investor can earn or pay in a year after taking into consideration compounding.the EAR can be calculated with the following formula.
Effective Period interest Rate =
Effective Rate = (1 + Nominal Rate ÷ n)n - 1
Where,
n - the number of compounding persiods per year n
Example :
To calculate the effective annual interest rate of a credit card with an annual rate of 36% and interest charged monthly(12 periods).
Effective annual interest rate = (1 + Nominal Rate ÷ n)n - 1
Effective annual interest rate = (1 + 36 ÷ 12)12 - 1
Effective annual interest rate = 0.4257 (or) 42.58% per year
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