Economics Time Value Of Money Questions
The compounding period refers to the frequency at which interest is added to the initial investment or principal amount. It determines how often the interest is calculated and added to the investment. The impact of the compounding period on the time value of money is that the more frequent the compounding, the greater the growth of the investment over time. This is because with more frequent compounding, the interest earned in each period is added to the principal, and subsequent interest calculations are based on the increased principal amount. As a result, the compounding period has a compounding effect on the growth of the investment, leading to higher returns and increasing the time value of money.