Question

Nonannual compounding period The number of compounding periods in one year is called compounding frequency. The compounding frequency affects both the present and future values of cash flows. An investor can invest money with a particular bank and earn a stated interest rate of \6.60

Answer 1

Compound interest is an interest rate calculation on the principal plus the accumulated interest. It is calculated using the formula: Compound interest = Future Value - Present Value.

Step-by-step explanation:

Compound interest is an interest rate calculation on the principal plus the accumulated interest.

To find the compound interest, we determine the difference between the future value and the present value of the principal. This is accomplished as follows:

Future Value = Principal x (1 + interest rate)time

Compound interest = Future Value - Present Value

Compound interest can make a huge difference with larger sums of money and over longer periods of time.