Question

Assume interest is compounded monthly. The ______ annual rate will express this rate as though it were compounded annually.

Answer 1

The term you are looking for is the "effective annual rate" (EAR). The effective annual rate expresses the interest rate on an annual basis when compounding occurs more frequently than annually, such as monthly in this case. It takes into account the effects of compounding during the year, providing a clearer picture of the actual interest earned or paid over a year.