The more frequent the compounding within a year:
A) It makes no difference on EAR and APR.
B) The lesser the difference between the EAR and APR.
C) The greater the difference between the EAR and APR.

Question

Quizplus · Accepted Answer

The more frequent the compounding within a year, the greater the difference between the Effective Annual Rate (EAR) and the Annual Percentage Rate (APR). This is because more frequent compounding periods result in interest being calculated more often, leading to a higher amount of interest accrued over the year compared to a scenario with less frequent compounding.

The More Frequent the Compounding Within a Year