ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -With monthly compounding, for example, the stated annual interest rate is divided by 12 to find the periodic (monthly) rate, and the number of years is multiplied by 12 to determine the number of (monthly) periods.

Detailed explanation-2: -Compound interest is calculated by multiplying the initial loan amount, or principal, by the one plus the annual interest rate raised to the number of compound periods minus one. This will leave you with the total sum of the loan including compound interest.

Detailed explanation-3: -Weekly Compounding Some savings and investment accounts compound weekly instead of daily. Instead of dividing your annual interest rate by 365, you would divide by 52. At the end of one week, your new balance would be $5, 004.81 and at the end of a year, it would be $5, 256.23.

Detailed explanation-4: -This means that interest is added weekly to the account. And as there are 52 weeks in the year, near enough, this means that interest is added 52 times per year. On the other hand, the plan with an 18.5 percent interest rate is compounded quarterly. That means interest is added every quarter or four times per year.