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20 July, 07:21

Joy is taking out a car loan which she will pay back with interest. Which option will require her to pay the lowest amount in interest?

A) Semi-annual compoundingB) Daily compoundingC) Annual compoundingD) Monthly compounding

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  1. 20 July, 09:44
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    C) Annual compounding

    Explanation:

    The formula for compound interest is given as

    Interest = Principle * (1 + Interest rate) ⁿ - 1

    Here,

    n is the number of compounding period

    and, the interest varies with the number of periods

    Now,

    For Annual compounding

    Number of compounding period in a year will be 1

    For Semi-annual compounding

    Number of compounding period in a year will be 2

    For Monthly compounding

    Number of compounding period in a year will be 12

    For Daily compounding

    Number of compounding period in a year will be 365

    Therefore,

    For annual compounding the interest will be least.
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