In which case will an investor receive the most interest:
Options
10%, compounded annually
10%, compounded monthly
10%, compounded continuously
10%, compounded daily
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Answer:10% compounded daily
Step-by-step explanation:
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Investors receive the most interest at 10% compounded daily.
The correct answer is 10% compounded daily
- Usually, interest rates are calculated based on two types of interest rates. They are simple interests and compound interests.
- In simple interest, the rate of interest remains unchanged throughout the maturity period. For eg, If Principal is Rs. 100 and Rate of interest is 10%, Tenure is 1 yr. If the rate of interest is calculated on a monthly basis, then the rate of interest is Rs. 10 per month and it would be Rs. 120 per year.
- In compound interest, the rate of interest is compounded upon the interest itself. For eg, we take the above example, the rate of interest would be Rs. 10 for the first month and in the second month, it would be Rs.10 + 1 ( which is interest for the interest amount Rs.10 ) will give us 11 for the second month.
- We can expect the best result from the compounded daily category where the amount is compounded on a daily basis.
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