Discrete Compounding

Dictionary Says

Definition of 'Discrete Compounding'


Discrete compounding refers to the method by which interest is calculated and added to the principal at certain set points in time. For example, interest may be compounded daily, weekly, monthly or even yearly. Discrete compounding is the opposite of continuous compounding, which uses a formula to compute interest as if it were being constantly calculated and added to principal.
Investopedia Says

Investopedia explains 'Discrete Compounding'


The frequency with which interest is compounded has a slight effect on an investor's effective annual yield. For example, suppose you deposit $100 in an account which earns 5% interest annually. If the bank compounds interest annually, you will have $105 at the end of the year. If, on the other hand, the bank compounds interest daily, you will have $105.13 at the end of the year.
comments powered by Disqus
Hot Definitions
  1. Earnings Call

    A conference call between the management of a public company, analysts, investors and the media to discuss the financial results during a given reporting period such as a quarter or a fiscal year.
  2. Legal Monopoly

    A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
  3. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  4. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  5. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  6. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
Trading Center