Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Define annual compounding
Expert Solution
Step 1
Compounding refers to the method whereby the principal, as well as the interest paid on it, is credited to the principal amount and the new principal amount is generated after every compounding period. It is also called interest on interest because it takes into consideration the previous year's interest payment into principal,to calculate new interest.
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