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    Frequency of compounding

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    If, as an investor, you had a choice of daily, monthly, or quarterly compounding, which would you choose? Why?

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    Solution Preview

    As an investor I would choose daily compounding.
    To see why this is so assume an investment of $ 1000 for a period of 1 year at the interest rate of 10%

    ^ denotes power

    1) Daily compounding

    Principal= $1,000
    Interest rate= 10%
    Daily interest ...

    Solution Summary

    Answers which is best-daily, monthly or quarterly compounding with the help of an illustration.