BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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dividing the number of years by the number of compounding periods
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multiplying the number of years by the number of compounding periods
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dividing the interest rate by the number of compounding period
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multiplying the years and dividing the interest rate by the number of compounding periods
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Detailed explanation-1: -Continuous Compounding of Interest If an annual interest rate compounds annually, then it should be compounded once a year. If an annual interest rate compounds semi-annual, then it should be compounded twice a year.
Detailed explanation-2: -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-3: -The time interval between the occasions at which interest is added to the account is called the compounding period . The chart below describes some of the common compounding periods: Compounding Period. Descriptive Adverb. Fraction of one year.
Detailed explanation-4: -The more compounding periods throughout this one year, the higher the future value of the investment, so naturally, two compounding periods per year are better than one, and four compounding periods per year are better than two.