Sir, for effective cost of discount, I use the formula, [ (Discount/Amount left to be paid) * (365/Reduction in days) ] *100 to get the answer. However, using your method, which is (1+R)^365/no. of days reduced , it provides a different answer. Why is that?
Thank you
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Effective Cost of Discount
8y ago#1It is because you are using the wrong formula :-)
The interest is effectively compounded which is why it is taken to the power 365 to compound for 365 days.
If you are unsure about compounding interest then it will help you to watch the free Paper F2 lectures on interest.
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