Effective interest rates

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    In normal past year question i calculate effective interest rate of a bond using irr.
    Why in dec08 the Q3 the answer calculate effective interest rate using this method ie = (in + 1)1/n – 1 or calculate nominal interest rate using this method i = (1 + ie)n – 1 ..
    What is the differences of irr and using formula? when should use IRR when should use that formula ?

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    John Moffat

    I am a bit puzzled by your question (which could be because of the difficulty typing on here what the examiner has in his answer).
    Usually the cost of debt is the IRR. However in this question he has given it to you, and the problem relates to calculating a monthly rate from an annual rate.



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