If the compounding period is less than one year, the annual interest rate must be converted to the compounding period interest rate by dividing the annual rate by the number of compounding periods per year.

Question

Quizplus · Accepted Answer

This is because the compounding period interest rate is the rate at which interest is earned during that specific compounding period, which can be calculated by dividing the annual interest rate by the number of compounding periods per year.

If the Compounding Period Is Less Than One Year, the Annual