Which of the following mathematical equations is used to compute the effective annual rate (EAR)?
A. EAR = (1/Periodic rate of interest)number of borrowing (interest) periods in one year- 1
B. EAR = (1 + Periodic rate of interest)number of borrowing (interest) periods in one year- 1
C. EAR = (1 - Periodic rate of interest)number of borrowing (interest) periods in one year- 1
D. EAR = (1 + Periodic rate of interest)number of borrowing (interest) periods in one year + 1
E. EAR = (1 - Periodic rate of interest)number of borrowing (interest) periods in one year + 1
Answer: B
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