What Happens When Compounding Period Changes?
Interest can be compounded more frequently than once per year: half-yearly (2 times per year), quarterly (4 times per year), monthly (12 times per year), or even daily.
Modified Formulas:
| Compounding Period | Rate per period | Number of periods | Formula |
|---|---|---|---|
| **Half-Yearly** | r/2 % | 2n half-years | A = P(1 + r/200)²ⁿ |
| **Quarterly** | r/4 % | 4n quarters | A = P(1 + r/400)⁴ⁿ |
| **Monthly** | r/12 % | 12n months | A = P(1 + r/1200)¹²ⁿ |
More frequent compounding = More interest!
Appreciation (Growth):
When the value of an asset increases over time (property value, investments, collectibles).
Depreciation (Decay):
When the value of an asset decreases over time (cars, electronics, machinery).
Formulas for Appreciation and Depreciation:
| Type | Formula | Example |
|---|---|---|
| **Depreciation** | A = P(1 - r/100)ⁿ | Car value decreasing |
Note: For depreciation, we use minus instead of plus in the formula.