Question

in which of the following frequency of compounding maturity value of investment will be highest?

Answer 1

Answer:

The higher the frequency of compounding, the higher is the maturity value of an investment. If one uses the nominal rate of 8% in the above formula, the maturity value of Rs 1 lakh invested in a five-year FD, compounded quarterly, works out to be Rs 1,46,933. But this is not the amount you will receive.

Answer 2

In the Annual frequency of compounding maturity value of an investment will be highest.

• With the increase in compounding frequency, the simple interest which is earned during a given period continues to be the same, however, the compound interest increases. The more frequently one will calculate the interest, the more it will compound and builds a bigger canon.

• Maturity value is the amount which is compelled to be received on the due date or on the maturity of the instrument or security that the investor happens to hold over its period of time and it is evaluated by multiplying the principal amount by the compounding interest which is then calculated by one plus rate of interest to the power which is equal to the period of time.

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