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Chapter 5.1, Problem 1CC
Summary Introduction

To discuss: The difference between effective annual rate (EAR)  and annual percentage rate (APR)

Introduction:

An effective annual rate is the interest rate that is actually earned at the end of one year. As the compounding period increases, the effective annual rate increases.

An annual percentage rate is the amount of simple interest earned in one year without the effect of compounding. This includes the additional fees with the transaction but does not consider compounding.

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Chapter 5 Solutions

Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)

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