With compound interest, the investor earns interest on the principal amount invested plus interest on accumulated interest. Which of the following compounding frequencies would yield the investor the greatest ending balance assuming all else is equal?
A) Daily
B) Monthly
C) Quarterly
D) Annually

Question

Quizplus · Accepted Answer

The more frequently interest is compounded, the greater the ending balance will be due to the effect of compounding. Daily compounding allows for the maximum possible compounding, resulting in the highest ending balance.

With Compound Interest, the Investor Earns Interest on the Principal