The Relationship Between Cash-Flow Instances and Compounding Interval
Whether you are talking about repaying a loan, putting money into a savings account, paying on and using a credit card (revolving credit), or moving money into or out of any interest-bearing fund, the relative timing of the cash-flow instances and the compounding period can have an effect on the interest—either paid or earned. For instance, money deposited in the middle of the month into an account with monthly compounding does not receive interest for the remaining half of that month.
Three different cases are discussed:
Cash flow happens at the same time as compounding.
Compounding happens more frequently than cash flow.
Cash flow happens more frequently than compounding.
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