The more frequently a bank compounds interest,____ will be.

Question

Quizplus · Accepted Answer

The more frequently a bank compounds interest, the greater the effective rate of interest will be. This is because compounding allows for the interest to be earned on the original principal as well as the previously earned interest, resulting in more interest being earned over time. The stated interest rate (option A) may not necessarily be affected by the compounding frequency, and the APY (option D) may be lower if the stated interest rate is lower and/or the compounding frequency is lower. Option E is partially correct but C is the best choice as it directly answers the question.

The More Frequently a Bank Compounds Interest,____ Will Be