If we invest in an account which pays 8% compounded _________, this will result in the...
If we invest in an account which pays 8% compounded _________, this will result in the largest return.
a) Annually
b) Monthly
c) Semiannually
d) Daily
e) Quarterly
Please provide an explantion with your answer.
Homework Answers
d) Daily
Compounded rate with highest frequency will have the largest return. Annually has only 1 frequency period, Monthly has 12 frequency periods, semi annually has 2 frequency periods, quarterly has 4 frequency periods and daily has 365 frequency periods. Since compounded daily has the highest number of frequency, it will have the largest amount. This is because the interest on interest will be the highest for compounded daily.
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