How is the effective annual rate (EAR) different from the nominal interest rate?

مؤثر سالانہ شرح (سی اے آر) برائے نام سود کی شرح سے کیسے مختلف ہے؟

EAR is always lower than the nominal rate

EAR accounts for compounding within the year, while the nominal rate does not

EAR is calculated on a monthly basis

There is no difference between EAR and nominal rate

The Effective Annual Rate (EAR) takes into account the compounding of interest within a year, whereas the nominal interest rate does not.

This making the EAR a more accurate representation of the actual interest earned or paid over a year.