Return on Software: Maximizing the Return on Your Software Investment

Using Different Interest Periods and Compounding Frequencies

All the formulas in Chapter 5 require that the interest rate, i, be an actual interest rate per interest period, whatever that period happens to be—a day, a week, a month, a year, etc. Unless explicitly stated otherwise, the interest period and compounding frequency are both assumed to be 1 year. But interest rates could be quoted for any period and any compounding frequency: daily, weekly, monthly, quarterly, semiannually, etc. Someone could say, for instance, that the interest rate is 3.5% semiannually compounded weekly.

It might seem that an interest rate of 12% per year is the same as 1% per month, but it's not really that simple. If you deposit $1000 into an account with 12% interest ...