EffectiveEffective Annual Rate (EAR)Effective annual rate (EAR) is the real interest rate earned on a loan or invested over a year. EAR takes into account the impact of compounding interest, which is why it's greater than the nominal interest rate.What is the EAR for First National Bank?First National Bank charges 14.3% compounded monthly on its business loans. So, the EAR of First National Bank is given by the formulaEAR = (1 + r/n) ^ n - 1where r = the annual interest rate chargedn = the number of compounding periods in a yearEAR = (1 + r/n) ^ n - 1= (1 + 14.3%/12) ^ 12 - 1= (1.011917)^12 - 1= 0.1492 or 14.92%Thus, the EAR for First National Bank is 14.92%.