Question

It is always desirable to have a higher compounding frequency, regardless of the initial investment or the time horizon. True False

Answer 1

The answer is given below

Step-by-step explanation:

Compounding frequency is the number of times the interest is paid in a year. A higher compounding frequency for a investment with the same initial investment and time horizon would produce more interest and profit as compared to that with a lower compounding frequency. But for a smaller initial investment or less time horizon of higher compounding frequency as compared to larger initial investment or more time horizon of lower compounding frequency, that of the lower compounding frequency is more desirable because it would produce more interest.