How do you work out APR (stated interest rate) if you know the Effective annual rate and compounding rate?
For example, if you have, let's utter, 10.00% Effective Annual Interest Rate (EAR) and the compounding period is 1 month.
The APR take into account points, closing costs, other fees. It's resembling when searching for bargain on the Internet, you usually find the vendors near the lower prices tend to charge more for shipping and handling. Banks use the same kind of tricks, but hide the details contained by smaller print. The effective interest rate is much equal. The compounding rate doesn't take into side the up-front one-time fees or termination fees. Also, the compounding rate is specific to the the compounding period, IE. Annual, monthly, day after day, instantaneously.
Anyway, a thorough description of APR versus other interest rates, and how they are calculated, interchanged and used. can be viewed at the pattern site below.
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(1+i/n)^n -1
(1+.1/12)^12 -1
(1.0083333)^12 - 1
1.1047121 - 1 = 10.47%
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