What Is the Effective Annual Rate (EAR)

Multiple Choice

What is the effective annual rate (EAR) ?

A) It is the interest rate that would earn the same interest with annual compounding.
B) It is the ratio of the number of the annual percentage rate to the number of compounding periods per year.
C) It is the interest rate for an n-year time interval, where n may be more than one year or less than or equal to one year (a fraction) .
D) It refers to the cash flows from an investment over a one-year period divided by the number of times that interest is compounded during the year.