Distinction between Stated Annual Interest Rate
and Effective Annual Rate
The distinction between the stated annual interest rate (SAIR), or APR, and the effec- tive annual rate (EAR) is frequently troubling to students. We can reduce the confu- sion by noting that the SAIR becomes meaningful only if the compounding interval is given. For example, for an SAIR of 10 percent, the future value at the end of one year with semiannual compounding is [1 + (.10