Question

Certain investments compound interest at different intervals. What effect does the size of the compounding interval have on the yield of the investment?

Answer 1

Compounding could be done monthly, quarterly, semiannually or annually. Compounding interest means that the ability of the asset to generate earnings. It is generating earnings from the previous earnings. The effect that the size of the compounding interval vary depending on how it is done:  monthly, quarterly, semiannually or annually. If you compound it monthly, the higher interest you earn compared to annually. Hope this answer helps.

Answer 2

Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. The compound interest earned depends on the frequency of compounding .Interest can be compounded on daily basis ,monthly basis ,quarterly ,semi-quarterly ,yearly .. basis .More the frequency of the Principal being compounded more will be the yield on investment or principal earned.