Question
Certain investments compound interest at different intervals. What effect does the size of the compounding interval have on the yield of the investment?
Answers
take a look at the graph of
(1+.10/n)^(n)
It shows the effective yield of 10% compounded n times per year.
It approaches continuous compounding, e^.1
http://www.wolframalpha.com/input/?i=plot+y%3D%281%2B.1%2Fn%29^n+for+n+%3D+1..40%2C+y%3De^.1
(1+.10/n)^(n)
It shows the effective yield of 10% compounded n times per year.
It approaches continuous compounding, e^.1
http://www.wolframalpha.com/input/?i=plot+y%3D%281%2B.1%2Fn%29^n+for+n+%3D+1..40%2C+y%3De^.1
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