Which one of the following statements is TRUE about the effective annual rate (EAR)?
A) The effective annual interest rate (EAR) is defined as the annual growth rate that takes compounding into account.
B) The EAR conversion formula accounts for the number of compounding periods and, thus, effectively adjusts the annualized interest rate for the time value of money.
C) The EAR is the true cost of borrowing and lending.
D) All of the above are true.
Answer: D
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