in ALECTO CO, when we calculate effective interest rate, we multiply 12 and divide by 5 which is the loan/deposit period in months.
i do not actually understand this method of calculating effective interest rate even after i watched OT videos...
is there more simpler way to understand ?....
is it like we multiply 12 months to get how much a company has to pay for the whole months and divide by 5 months which is the loan/deposit period to allocate for each month ?
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effective annual interest rate
8y ago#1Yes - dividing by 5 give the interest per month (because the loan is for 5 months) and then multiplying by 12 gives the interest per year (because there are 12 months in a year).
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