Comparing Compounding Frequencies
1. Write the formula to calculate compound interest. Identify the variables. Which variables can be changed with a slider in this simulation?
2. Effect of compounding: How does the investment grow differently with different compounding frequencies?
3. Effect of interest rate: How does the final balance change as the interest rate increases? Hint: Increase the rate by 1% at a time and note the effect on the investment.
4. Effect of principal: How does the principal amount affect the investment growth? How does this compare across different compounding frequencies?
5. Describe the growth. How does the compounding frequency change the steepness of the curve? Hint: Make a graph.
6. Based on this animation, which compounding frequency would you choose for your savings, and why?