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Sagot :
Effective Annual Rate=[tex]20.98%[/tex]
Effective annual interest rate = (1 + (nominal rate ÷ number of compounding periods)) ^ (number of compounding periods) - 1
if normal rate =1
[tex]1+0.016(12-1)[/tex]=[tex]20.98%[/tex]
An effective annual interest rate is the real return on a savings account or any interest-paying investment when the effects of compounding over time are taken into account. It is the annual rate of return earned on an investment or the annual rate of return paid for a loan if the interest is compounded more than once in a year. The Effective Annual Rate (EAR) is the rate of interest actually gained on an investment or paid on a loan as a result of compounding the interest over a certain period of time. It also indicates the real percentage rate owed in interest on a loan, a credit card, or any other debt.
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