Q:

# How do you calculate the annual equivalent rate?

A:

The formula for calculating the annual equivalent rate (AER) isAER = (1 + r/n)&supn - 1. In the formula, "r" is the stated interest, and "n" is the number of times interest is paid. Investors use AER to get a better picture of the interest earned in a year.

## Keep Learning

AER adjusts for compounding interest. Compound interest is interest added to the principal for a deposit or a loan. As a result, AER is usually higher than an annual percentage rate (APR), and it gives a true picture of interest earnings, according to Investing Answers. This interest on top of interest allows a deposit or loan to grow faster. AER is a good tool for comparing investment products.

Sources:

## Related Questions

• A: The formula used to calculate annual percentage rates on mortgage loans is L - F = P1/(1 + i) + P2/(1 + i)2 +… (Pn + Bn)/(1 + i)n, cites the Mortgage Profe... Full Answer >
Filed Under:
• A: The formula to find the present value of an annuity is: C x [1-[1/(1+i)n]]/i. "C" represents the dollar amount of each payment received. The letter "i" rep... Full Answer >
Filed Under:
• A: A reserve ratio formula is used for calculating how much money banks can loan out as a percentage of the deposits they have on hand. It takes into account ... Full Answer >
Filed Under:
• A: The inventory turnover ratio is a formula that displays how many times inventory is replaced over a period of time by dividing cost of goods sold over aver... Full Answer >
Filed Under: