Question

What is the definition of an APR?

What is the effective annual rate?

Which rate should you use to compare alternative investments or loans?

   Which rate do you need to use in the time value of money calculations

Answer 1

Answer 1.The definition of an APR is the annual rate charged for borrowing or on through an investment and is expressed as a percentage that presents The actual yearly cost of funds over the term of loan. An annual percentage is that animal rate chart for boring or on through an investment and is expressed as in percentage that represents the actual early cost of funds over the term of law this includes any fees or additional cost associated with the transaction but does not take compounding into account as loan on credit agreements can vary in terms of interest rate structure transaction fees late penalties and other factors a standardized computation such as the API provides borrowers with a bottom line number they can easily compared to rates charged by other lenders. Answer 2. The effective interest rate effective annual interest rate a simple effective rate is the interest rate on a loan or final product restated from the nominal interest rate as an interest rate will compound annually interest payable in arrears effective. Answer 3. Annual percentage rate in loans in terms of loan interest API is an annualized figure representing how much loan will cost for a given how frequently interest to secure and the term of the loan the difference is important because the most installment loans early payments are primarily payments of interest while filing payments are primarily payments of the base amount of the loan in self in addition the most frequently interest to charge against the remaining loan the more interest is paid APR takes into account all the interest that will actually be paid against the loan and divide it by the term of loan in years. So for a 100000 dollars only if the actual interest over the course of 10 years is one last $150000 the annualized interest cost of the loan would be $15,000 since $15,000 is 15% of 100000.the APR for this loan is 15%. Annual percentage rate in loans - effective annual percentage rate in loans start with the same figures as annual percentage rate but also factors in an additional fees the lender may charge to give a more comprehensive expression of the cost of road in the case of 10 year 100000 dollar loan with 15% APR a bank recharge $30 annual loan fee does the total interest cost plus total fees would come to $150300. So the effective annual rate on this loan would be 15.03%. Answer 4. Annual percentage rate and effective annual percentage rate in investing or value of money calculations when expressing investment income APR and EAR are calculated differently in this case annual percentage rate is the interest paid on the investment X the frequency with which it is accrued .EAR on the other hand is an expression of how much the investment will earn assuming that the interest paid on it is reinvested at the same interest rate so if an investment space 10% in interest compounded every six months the APR is 20%. However the EAR will be more pertinent to an individual retirement account for instance done for an income investment in which money is paid to the investor rather than reinvested .