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Effective annual rate (EAR)
Also called EAR, annual equivalent rate. A CFA term, defined in plain English with the distinction examiners test.
What it means
The rate that, compounded once a year, gives the same growth as a stated nominal rate compounded more often.
The exam angle
EAR rises with compounding frequency and converges on e^r − 1 under continuous compounding. Comparing two quoted rates of different frequencies without converting to EAR is a trap.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
On the calculator
Time value of money questions on the BA II Plus come down to five keys and a few traps (payments per year, BGN mode, the sign of cash flows). Watch the keystrokes video.
Related terms
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Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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