The concept of both is the same thing – calculating the annualized return rate of a security.
Effective annual yield (EAY) usually calculates the annualized holding period yield (HPY) or yield to maturity (YTM), which is the return earned when a security is held until maturity. Remember that EAY:
- (Usually) assumes 365 days in a year
- Incorporates compounding
where HPY = holding period yield (or YTM)
Effective annualized rate (EAR) is usually converting a % rate (e.g. nominal 8% paid quarterly) to a rate that indicates the actual interest paid when compounding is taken into account. EAR tends to ‘scale up’ or ‘scale down’ payment periods such as semi-annually, quarterly, etc.
So for a nominal 8% rate paid quarterly:
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