Hello Julio,
I think there is a small mistake in the formula sheet for calculating the EAR. In the sheet it is stated that the EAR can be calculated as follows:
It should be 1+PRn = (1+(APR/n))^n or?
Dear Roman,
PR means proportional rate, not effective annual rate. To convert from effective to proportional, remember that both are equal at the frequency of compounding. For instance, if we compound monthly, the proportional monthly rate equals the effective monthly rate.
PR means proportional rate, not effective annual rate. To convert from effective to proportional, remember that both are equal at the frequency of compounding. For instance, if we compound monthly, the proportional monthly rate equals the effective monthly rate.
I find this method more intuitive and less prone to error.
Best
Got it. Thanks for clarifying it.