Asked by Irene Lujano on Jun 19, 2024
Verified
If you ran a bank, which rate would you rather advertise on monthly-compounded loans, the EAR or the APR? Which rate would you rather advertise on quarterly-compounded savings accounts, the EAR or the APR? Explain. As a consumer, which would you prefer to see and why?
EAR
Effective Annual Rate, a measure of interest that accounts for compounding over a year, providing a more accurate depiction of financial product returns.
APR
Annual Percentage Rate; a comprehensive measure of the cost of borrowing on an annual basis, including interest and other fees.
Monthly-Compounded
Monthly-Compounded refers to the process of applying interest on an investment or loan on a monthly basis, where each month's interest is added to the principal.
- Compare and contrast Annual Percentage Rate (APR) with Effective Annual Rate (EAR), highlighting their effects on borrowers and lenders.
Verified Answer
Learning Objectives
- Compare and contrast Annual Percentage Rate (APR) with Effective Annual Rate (EAR), highlighting their effects on borrowers and lenders.
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