Certain investments compound interest at different intervals. What effect does the size of the compounding interval have on the yield of the investment?
a. Investments with smaller compounding intervals have a higher yield, because the interest
earned is reinvested more quickly and thus gains compound interest more quickly.
b. Investments with smaller compounding intervals have a lower yield, because the interest earned
is smaller at each interval.
c. The size of the compounding interval does not affect the total yearly interest percentage rate and
only exists for bookkeeping purposes.
d. Investments with smaller compounding intervals have a lower yield, because the bank charges
a small fee every time interest is compounded.

Option A: Investments with smaller compounding intervals have a higher yield, because the interest earned is reinvested more quickly and thus gains compound interest more quickly

Step-by-step explanation:

Compounding could be done monthly, quarterly, semiannually or annually. Compound interest is simply when we add the interest to the principal sum of a loan or amount deposited. It's also referred to as interest which is accrued on interest.

The compound interest that will be earned mainly depends on the frequency of compounding. Now compounding could be done monthly, quarterly, biannually or annually. Now, If we compound monthly, we will have a higher interest return than if we compounded annually.

Thus, looking at the options, the correct one is Option A