So, this question came up while studying for an upper level, but it is not important that I understand the why for my exam.
Does anyone know the history of interest rates compounding at intervals other than a year?
It just seems like a way to confuse people by saying the interest is 6%, but not really because we divide by 12, then we charge the principle by that each month.
Or is the problem that it is even more confusing to say "The monthly effective interest rate is 0.75%" or "the quarterly effective interest rate is 1.75% "etc?
Just seems like having numerous ways to compound interest rates is a great way to confuse people.
Anyone know?
Cheers,
Gareth Keenan
Does anyone know the history of interest rates compounding at intervals other than a year?
It just seems like a way to confuse people by saying the interest is 6%, but not really because we divide by 12, then we charge the principle by that each month.
Or is the problem that it is even more confusing to say "The monthly effective interest rate is 0.75%" or "the quarterly effective interest rate is 1.75% "etc?
Just seems like having numerous ways to compound interest rates is a great way to confuse people.
Anyone know?
Cheers,
Gareth Keenan
Interest compounding at non annual intervals?
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