in part (A) in KESHI CO (DEC 14),
in the calculation of effective interest for 4.36%
the calculation will be 458010 / 18million x (12/7) x 100 = 4.36%
why is it 12/7 ? why not 7/ 12 ????
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KESHI CO ( DEC 14)
8y ago#1458010/18M is the effective interest over 7 months.
We need the effective annual interest. There are 12 months in a year, so we multiply by 12/7.
You should watch my free lectures on interest rate risk - I explain this in the lectures.
why do we actually calculate the effective annual interest ?
i mean like what is the reason for calculating effective annual interest when the net cost is already displayed in the working.
8y ago#3To be able to compare with other alternatives.
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