The more frequent the compounding, the _____.
A) greater the present value
B) greater the amount deposited
C) greater the effective interest rate
D) lesser the future value

Question

Quizplus · Accepted Answer

The more frequent the compounding, the greater the effective interest rate. This is because at each compounding interval, interest is earned on the principal and any previously accrued interest. As a result, the effective interest rate increases as compounding becomes more frequent. Therefore, the correct answer is C, greater the effective interest rate.

The More Frequent the Compounding, the _____