The term “annual percentage rate (APR)” refers to the annual rate of interest charged to borrowers and paid to investors.
APR is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan or income earned on an investment. Investors can use the APR as a bottom-line number to compare different investment products.
APR is calculated by multiplying the periodic interest rate by the number of years during which that rate is applicable. Keep in mind that APRs don’t account for the compounding of interest within a year.
APR = Periodic Rate x Number of Periods in a Year
See also APY.
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