Compounding more frequently results in:

A Lower effective rates

B Higher effective annual rates

C No change in returns

D Lower returns

✓ Correct Answer: Option B

More frequent compounding increases the effective annual rate because interest earns interest more often.

💡 Why is B) the correct answer?

The correct answer to the question "Compounding more frequently results in:" is Option B: Higher effective annual rates.

The other options — A) Lower effective rates, C) No change in returns, D) Lower returns — are incorrect for this CFA Exam Prep question. As explained above: More frequent compounding increases the effective annual rate because interest earns interest more often.

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Quantitative Methods topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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Compounding more frequently results in:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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