5.5 Compounding Interest More Frequently Than Annually

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Interest often compounds more frequently than once a year. Savings institutions compound interest semiannually, quarterly, monthly, weekly, daily, or even continuously. This section discusses various issues and techniques related to these more frequent compounding intervals.

Semiannual Compounding

Semiannual compounding of interest involves an investment with two compounding periods within the year. Rather than paying the stated interest rate once a year, the investment pays one-half of the stated interest rate twice a year.

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