Effective Annual Return (EAR) Formula

1 FINANCE MCQS

The formula to calculate the effective annual return (EAR) is written as ____________?

(1 + r)^c – 1
(2 + r)^c – 2
(3 + r)^c – 3
(1 + r)^c – 5

Correct Answer: A. (1 + r)^c – 1

Detailed Explanation

The Effective Annual Return (EAR) formula is (1 + r)^c – 1, where r is the periodic interest rate and c is the number of compounding periods in a year. This shows the actual annual return considering compounding effects.

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The formula to calculate the effective annual return (EAR) is written as ____________?

The formula to calculate the effective annual return (EAR) is written as ____________?

Detailed Explanation

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In cash flow analysis, two projects are compared using a common life approach, which is classified as…

In capital budgeting, the Internal Rate of Return (IRR) of a project is classified as its ____________?…

In evaluating independent projects, the results of Internal Rate of Return (IRR) and Net Present Value…