5 ms·
If the daily interest rate is 0.008 then the annualized rate is 2.92%, not 3%. The standard is to multiply by the number of periods, not to take compounding int
by ikeboy 8y ago
If the daily interest rate is 0.008 then the annualized rate is 2.92%, not 3%. The standard is to multiply by the number of periods, not to take compounding into the calculation.
- talltimtom 8y agoWhy would the standard be to calculate a number that has no use and isn’t rooted in reality? If the rate is 3% annually and paid out daily, the the daily rate is the number that compounded yields 3% annually....
- ikeboy 8y agoBecause it makes it easy to calculate how much is distributed. Just take the annual rate, divide by number of periods, and multiply by the amount of principle.
- rexaliquid 8y agoThat's true of the nominal rate. A nominal 3% divides to an effective daily rate of 0.0082 %. But the effective rate is (1 + Nominal Rate / n)n - 1 or just over 3.2%.