ECON 435: Effective annual rates

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ECON 435 > ECON 435: Effective annual rates

Effective annual rate forumlas

Period rate(Rm) = Quoted annual rate (APR) divided by m

Effective annual rate =[1 + (Rm)]^m -1 (expressed in precentage form)

APR = Period rate (Rm) x period (m)

E.G. Period rate = 5.75%/4 = 1.4375%

EAR = (1 + 1.4375%)^4 - 1 = 0.05875 = 5.875%

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