## Effective Annual Rates

### APR in the United States

In the United States, APR is calculated by simply multiplying the periodic interest rate by the number of
periods. Therefore, if the monthly rate is 1%, the equivalent APR is simply 12%. Indeed, DreamCalc supports
in-line calculation of this input with the **[12×]** and **[12÷]** TVM function keys.

### Other Countries

#### Europe & United Kingdom

In Europe, APR is calculated by compounding the monthly interest rate over the year. This rate is sometimes
called the Annual Percentage Yield in the U.S., or *effective annual rate* in Europe. In DreamCalc,
calculation of effective annual rates do not take into consideration an initial fee.

#### Canada

In Canada, the situation is a little more complex. A compounding frequency of 2 per year is used, even though
there may be 12 payments per year.

### Calculation of Annual & Monthly Rates

DreamCalc provides two functions for making European and Canadian annual rate calculations simple:

**EAR** - Converts a monthly rate to an effective annual rate.
**EMR** - Converts an effective annual rate to a monthly one.

These functions may be used with either European or Canadian rules, as specified in the Options Window.

**European Example:** *Given a monthly rate of 1%, what is the equivalent effective annual rate?*

Ensure the calculator is set to use the monthly rule for this calculation.

**1.00 [EAR]**
Displays: 12.68

Note that EMR is the reverse operation of EAR. Therefore, pressing **[EMR]** using the result of previous
calculation will yield a value of 1.00.

**Canadian Example:** *Given an annual rate of 9.5%, what is the equivalent monthly rate?*

Ensure the calculator is set to use the Canadian rule for this calculation.

**9.50 [EMR]**
Displays: 0.78

The above examples assume the use of the RPN input mode. To
perform the last calculation using prefix algebraic input, key in the following instead:

**[EMR] 9.50
[ENTER]**
Displays: 0.78

See also: Compound Interest