calculator
BA II Plus: Effective Annual Rate Step by Step
Calculate effective annual rate from stated annual rate and compounding frequency.
TL;DR
EAR converts a stated annual rate into the actual annual growth rate after intra-year compounding. It is essential when comparing rates with different compounding frequencies.
Formula Reference
Effective annual rate
EAR = (1 + stated rate / m)^m - 1m is the number of compounding periods per year.
BA II Plus Keystrokes
- Divide the stated rate by compounding periods.
- Add 1.
- Raise to the compounding-period power.
- Subtract 1 and convert to percent.
Worked Example
- Problem: 12 percent stated annual rate, monthly compounding.
- EAR = (1 + 0.12 / 12)^12 - 1.
- Result: 12.6825 percent.
Common Mistakes
- Using 12 instead of 0.12 in the formula outside I/Y fields.
- Forgetting to subtract 1.
- Comparing stated rates without converting to EAR.
Related Guides
- Time Value of Money Calculations on the BA II Plus - CFA Level I TVM reference for present value, future value, annuities, perpetuities, and BA II Plus inputs.
- CFA Level I Quantitative Methods Formula Sheet - Public formula sheet for CFA Level I quantitative methods calculations.
- BA II Plus Calculator Shortcuts for CFA Level I - Fast BA II Plus workflows for clearing registers, storing values, changing signs, and avoiding exam-day calculator errors.