Annual Percentage Rate And Annual Effective Rate: Resolving Confusion In Intermediate Accounting Textbooks
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Keywords
Annual Percentage Rate, APR, Annual Effective Rate, AER, Nominal Rate, Effective Rate, Annual Rate, Periodic Rate, Usable Funds
Abstract
Evidence of confusion in intermediate accounting textbooks regarding the annual percentage rate (APR) and annual effective rate (AER) is presented. The APR and AER are briefly discussed in the context of a note payable and correct formulas for computing each is provided. Representative examples of the types of confusion that we found is presented and evaluated.
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