Cost of capital

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June 4, 2017 at 4:57 pm #390268
goshairina
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Hi, if cost of capital 12% p.a we calculate monthly rate: (1.12^1/12 – 1) x 100 = 0.95 %. I don’t understand it. Why don’t we just divide 12 by 12 =1%. Thank you.
June 5, 2017 at 7:36 am #390417
John Moffat
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Because it is compound interest. You need to watch the free Paper F2 lectures on interest, where this is explained in full (because this is revision of F2).
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