effective annual interest rate

This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.

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June 23, 2018 at 10:21 am #459801
foeldh123
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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 ?
June 23, 2018 at 2:52 pm #459813
John Moffat
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Yes – 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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