what does this mean 8% (5.26% EAR)

[athens2004]

Why is there a difference, what does the EAR mean.

 

[MugsGame]

They might give you 8% at the end of 18 months, so the Equivalent Annual Rate is 5.26% for 12 months.

More at http://www.askaboutmoney.com/showpost.php?p=667117&postcount=6

 

[athens2004]

Sorry still dont understand,

 

[jhegarty]

Sorry still dont understand,

the 8% is over the full term of the money has to be in for , the 5.26% is the yearly rate....

 

[Bank Manager]

Sorry - the formatting on this isn't great - what I'm trying to show is the way this works in reality.

Annual interest rate of 5.26% on say E100 is E5.26 (ignoring DIRT). Then for the second 6 months - the capital amount is E105.26, and at a rate of 5.26% for this six months will add another E2.77 (again ignoring DIRT). Total balance at the end of the 18 months represents an 8% return on the original amount.

Hope it helps. Again sorry for formatting - went funny when I did the cut and paste.

Regards,


BM

                    Capital  AER    Interest  Capital + Int 
Year 1              100      5.26%  5.26      105.26 
Year 2 (six months) 105.26   5.26%  2.77      108.03    
  
8% after 18 months on initial E100.

 

[athens2004]

Thanks everyone for replies and thanks bank manager you explained it very well............now I understand.