The effective annual rate takes compounding into account, while the annual percentage rate takes neither compounding nor discounting into account.
The rate of interest that is actually generated on an investment or paid on a loan as a result of compounding interest over a specified amount of time is known as the Effective Annual Rate (EAR).
The percentage of interest due on a loan or financial product if compound interest builds up over the course of a year with no payments made is known as the effective interest rate, also known as the effective annual interest rate, annual equivalent rate, or simply effective rate.
When the benefits of compounding over time are taken into account, the real return on a savings account or any other interest-paying investment is known as the effective annual interest rate. It also displays the actual percentage rate of interest owed on any outstanding debts, including credit card debt and loans.
To learn more about effective annual interest rates refer to:
https://brainly.com/question/13024233
#SPJ4
