2006-09-13 10:42:37 · 9 answers · asked by Anonymous in Business & Finance ➔ Investing
Depends on the rate. But assuming rate is the same, you'll want the one that compounds the most (like continuous and yes, there is continuous).
Say you got 24% compounded yearly, quarterly, monthly, daily, and continuously.
Here's what your interest would be after one year.
Yearly is (1 + 0.24) ^1 -1 = 24%
Quarterly is (1 + 0.24 / 4)^4 - 1 = 26.248%
Monthly is (1 + 0.24 / 12)^12 - 1 = 26.824%
Daily is (1 + 0.24 / 365)^365 - 1 = 27.115%
Continuous is e^(0.24X1) - 1 = e^0.24 -1 = 27.125%
Hope that helps!
2006-09-13 11:01:49 · answer #1 · answered by Yada Yada Yada 7 · 1⤊ 0⤋
Daily is better.
You want interested compounded as often as possible because then you get interest on your interest. For example, suppose you have an investment that pays 6% interest and you invest $100. If it's compounded annually, that means at the end of the year you get $6 in interest. If it's compounded monthly, then you get 0.5% interest (6% divided by 12 months) at the end of the first month, so you now have $100.50. During the second month, you are earn interest on the extra 50 cents, and so on. At the end of the year, you then have
$100 * (1.005)^12 = $106.16 and your effective interest rate is actually 6.16%. It's not a big difference, but it is better.
2006-09-13 10:50:43 · answer #2 · answered by ChicagoDude 3 · 0⤊ 0⤋
The compounding period is irrelevant. What matters is how much it comes to at the end of the year, which is called the Annual Equivalent Rate (AER)
E.g. 0.0133681% per day is 5% pa.(AER)
2006-09-13 11:05:13 · answer #3 · answered by Anonymous · 0⤊ 0⤋
Daily. The more frequent it is compounded, the more frequently you get paid interest on your investment.
2006-09-13 10:50:18 · answer #4 · answered by Privratnik 5 · 0⤊ 0⤋
If all the investments have the same interest rate then of course daily!
2006-09-13 11:09:52 · answer #5 · answered by rajatharjani 4 · 0⤊ 0⤋
Daily, or the one that compounds most often. That way, the interest you earn on your money earns its own interest sooner. (unless the less often one has a significantly higher percent interest).
2006-09-13 10:46:14 · answer #6 · answered by jaggerlink 2 · 0⤊ 0⤋
what is the APR of each?
APR will rise with more frequent compounding periods and it is a standard way of quoting % rate (let's the consumer do an apples to apples comparison).
2006-09-13 13:20:10 · answer #7 · answered by derek 4 · 0⤊ 0⤋
easy: daily, the more something compounds the more money you'll make.
2006-09-13 11:30:38 · answer #8 · answered by chadspolka.matrix 2 · 0⤊ 0⤋
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2006-09-13 10:44:27 · answer #9 · answered by Anonymous · 0⤊ 0⤋