The Effective Percentage Rate (EAR) is not the rates that are usually quoted on mortgages, credit cards etc... Returns on assets with regular Cash Flow s, such as mortgages and Bonds are usually quoted as annual percentage rates (APRs). The APR is a simple annualized interest rate rather than a monthly or periodic rate. The APR is also know as the nominal rate and does not take compounding into consideration. If you were to take out a loan with an APR of 4%, the bank that issued the loan would actually earn a return slightly higher than 4%. This return is known as the Effective Percentage Rate. The effective percentage rate take the periodic rate and compounds it over the periods.
APR = (Per-period rate)x(Periods per year)
EPR = (1+ Per-period rate)^n n=number of periods