Question

True or False? Greater compounding frequency will result in a larger present value

Answer 1

False , compounding is the method of allocating the interest portion to present value on bsis of daily. monthly, semiannually or yearly. The future value after compoundign will be highest on daily basis and  lowest at yearly basis if all other things remain constant.. The other things are rate of return and pricipal value. So compounding frequency decide higher result or lower result. Present value is concerned with the discounting . And as higher the frequency that higher the result whether for present value calculation or future value calculation.

so the above statement is false. Greater frequency will result in a larger value but compounding related with present value not with future value.

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