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When payments are more frequent than compounding, one approach is to

  • A.convert the payments to a single end-of-year sum with interest
  • B.treat the payments as accumulating without interest within the period
  • C.use the nominal rate for each payment period
  • D.compound each payment from its own date

Answer: B

Where the convention is that no interest is credited between compounding dates, the payments within a period are simply summed. The alternative is to find an equivalent rate for the shorter payment period, which the problem must specify.

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