The greater the number of compounding periods, the larger the future value. The investor should choose daily compounding over monthly or quarterly.
Monthly compounding earns more then quarterly. For example if your told your account earns 6% compounded monthly, then after 12 months you should earn 6.17% . If your account compounds quarterly, then after four quarters you should earn 6.14% .
With the same rate of interest, monthly compounding is more than 3 times as large.The ratio of the logarithms of capital+interest is 3.
On a traditional loan the interest is compounding monthly. With amortization the monthly payment is split up equally between the interest and the actual house payment.
The answer, assuming compounding once per year and using generic monetary units (MUs), is MU123. In the first year, MU1,200 earning 5% generates MU60 of interest. The MU60 earned the first year is added to the original MU1,200, allowing us to earn interest on MU1,260 in the second year. MU1,260 earning 5% generates MU63. So, MU60 + MU63 is equal to MU123. The answers will be different assuming different compounding periods as follows: Compounding Period Two Years of Interest No compounding MU120.00 Yearly compounding MU123.00 Six-month compounding MU124.58 Quarterly compounding MU125.38 Monthly compounding MU125.93 Daily compounding MU126.20 Continuous compounding MU126.21
Interim Periods
monthly, quarterly or annually.
bi-monthly
monthly,quarterly, semi annual, or yearly
That depends on how often it is compounded. For annual compounding, you have $100 * (1 + 5%)2 = $100 * (1.05)2 = $100*1.1025 = $110.25This works because at the end of the first compounding period (year), you've earned interest on the amount at the beginning of the compounding period. At the end of the first year, you have $105.00, and the same at the beginning of the second year. At the end of the second compounding period, you have earned 5%interest on the $105.00 so it is $105 * (1.05) = $100*(1.05)*(1.05) or $100 * 1.052.Compounding more often, will yield a higher number, but not much over a 2 year period. Compounding continuously, for example is $100 * e(2*.05) = $100 * e(.1)= $100 * e(.1) = $100 * 1.10517 = $110.52 (27 cents more).Compounding daily will be close to the continuous function, and compounding monthly or quarterly will be between $110.25 and $110.52
yearly -Wrong. Quarterly or monthly.
yearly -Wrong. Quarterly or monthly.
On monthly compounding, the monthly rate is one twelfth of the annual rate. Example if it is 6% annual, compounded monthly, that is 0.5% per month.