Apr To Ear Calculator

EAR Equation:

\[ EAR = (1 + \frac{APR}{m})^m - 1 \]

Effective Annual Rate (EAR):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the APR to EAR Conversion?

The EAR (Effective Annual Rate) calculation converts a stated Annual Percentage Rate (APR) to the actual annual rate when compounding is taken into account. This provides a more accurate measure of the true cost or return of financial products.

2. How Does the Calculator Work?

The calculator uses the EAR equation:

\[ EAR = (1 + \frac{APR}{m})^m - 1 \]

Where:

\( APR \) — Annual Percentage Rate (as decimal)
\( m \) — Number of compounding periods per year

Explanation: The equation accounts for the effect of compounding interest more frequently than annually.

3. Importance of EAR Calculation

Details: EAR allows for accurate comparison between financial products with different compounding periods. It shows the true annual cost of loans or annual return on investments.

4. Using the Calculator

Tips: Enter APR as a decimal (e.g., 0.05 for 5%), and the number of compounding periods per year (e.g., 12 for monthly). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is EAR different from APR?
A: EAR includes the effects of compounding, while APR does not. EAR represents the actual annual rate when compounding is considered.

Q2: When is EAR higher than APR?
A: EAR is always equal to or higher than APR. The difference increases with more frequent compounding.

Q3: How do I convert percentage APR to decimal?
A: Divide the percentage by 100 (e.g., 5% becomes 0.05).

Q4: What's the difference between EAR and APY?
A: They are essentially the same concept - both account for compounding. APY is the term typically used for deposit accounts.

Q5: What if interest compounds continuously?
A: Use the formula EAR = e^APR - 1 (where e is Euler's number ≈ 2.71828).