Why Is the Effective Rate of Interest Always Higher Than

question 92

Essay

Why is the effective rate of interest always higher than the interest rate of the loan on a discounted note?

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Definitions:

Cumulative

Cumulative refers to the total amount accumulated over a series of periods, often used in the context of dividends or other accumulative data.

Undeclared Dividends

Dividends that have been earned by shareholders but have not yet been declared by the company's board of directors.

Prior Claim

A legal right or financial obligation that takes precedence over others, typically in the context of creditors in bankruptcy proceedings.