when interest is compounded semi-anually, how many conversion period(s) should be there in a year?
Answers
Step-by-step explanation:
Bank deposits, over time, usually have compound interest . That is, interest is computed on an account such as a savings account or a checking account and the interest is added to the account. Because the interest is added to the account (the alternative would be to mail the interest to the customer), the interest itself earns interest during the next time period for computing interest. This is what is meant when it is said that the interest compounds . See Salas and Hille, page 448-449.
The time interval between the occasions at which interest is added to the account is called the compounding period . The chart below describes some of the common compounding periods:
Compounding Period Descriptive Adverb Fraction of one year
1 day daily 1/365 (ignoring leap years, which have 366 days)
1 month monthly 1/12
3 months quarterly 1/4
6 months semiannually 1/2
1 year annually 1