Chapter 5: TVM (Week 2) Flashcards by Candice Abell | Brainscape

Q

Effective Annual Rate (EAR)

A

Indicates the total amount of interest that will be earned at the end of one year
Considers the effect of compounding
Also referred to as the effective annual yield (EAY) or annual percentage yield (APY)

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Q

Annual percentage rate (APR)

A

indicates the amount of simple interest earned in one year
The APR does not reflect the true amount earned over one year, the APR itself cannot be used as a discount rate and it is not an effective annual rate (EAR).

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Q

Simple interest

A

amount of interest earned without the effect of compounding

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