ECONOMICS
COMPOUND INTEREST
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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n = 50
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n = 52
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n = 12
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n = 365
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Detailed explanation-1: -If interest is compounded yearly, then n = 1; if semi-annually, then n = 2; quarterly, then n = 4; monthly, then n = 12; weekly, then n = 52; daily, then n = 365; and so forth, regardless of the number of years involved.
Detailed explanation-2: -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-3: -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.
Detailed explanation-4: -For example, 5% interest with quarterly compounding has an effective annual yield of (1 + . 05/4)^4-1 = . 0509 or 5.09%.
Detailed explanation-5: -For a daily interest rate, divide the annual rate by 360 (or 365, depending on your bank). For a quarterly rate, divide the annual rate by four. For a weekly rate, divide the annual rate by 52. 03-Jun-2022