Which of the following are true of Effective Annual Rates (EAR)? Select all that are true...

Which of the following are true of Effective Annual Rates (EAR)? Select all that are true

		The EAR can never be less than APR
		The EAR can never be the same as APR
		The EAR will always be the same or more than APR
		EAR and APR have no relationship

Solutions

Expert Solution

EAR = (1+(APR/n))^n - 1

n = number of compounding periods

From the above formula

EAR can never be less than APR - TRUE

When N = 1, EAR = APR so second option is False

The EAR will always be the same or more than APR - TRUE

EAR and APR have no relationship - FALSE

Option 1 and 3 are TRUE

jeff jeffy answered 2 years ago

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