If compounding is changed from an annual to a semiannual basis,what happens to future value and present value? Future value Present value
A)Decreases Decreases
B)Decreases Increases
C)Increases Decreases
D)Increases Increases

Question

Quizplus · Accepted Answer

When compounding frequency increases (from annual to semiannual, in this case), the future value increases because interest is being calculated and added to the principal more frequently. The present value decreases because a dollar in the future is worth less when interest is compounded more frequently, requiring a smaller amount to be invested today to reach the same future value.

If Compounding Is Changed from an Annual to a Semiannual