Suppose you are investing money at a 10% annual nominal interest rate. To earn as much as possible, which one of the following compounding periods should you prefer?
A)daily
B)weekly
C)monthly
D)annually

Question

Quizplus · Accepted Answer

Compounding daily will result in the highest effective annual interest rate, also known as the annual percentage yield (APY). This is because with daily compounding, the interest earned each day is added to the principal, and then the next day's interest is calculated based on the new higher balance. This continuous compounding results in a higher overall return compared to compounding less frequently, such as weekly, monthly, or annually.

Suppose You Are Investing Money at a 10% Annual Nominal