<u>The correct option is A.
</u>
<u>Compounding frequency refers to how often your interest is calculated and added back into your account.
</u>
Further explanation:
Compounding frequency:
Compounding frequency is a number of periods for which the interest is to be compounded in a year.
For example, the number of compounding frequency for one year will be one, but the number of compounding frequency for months will be twelve.
Justification for the correct and incorrect answer:
A
How often your interest is calculated and added back into your account: This option is correct.
It is the number of times the interest will be calculated on the number of periods and depends on the loan amount. Interest is calculated and then added back into the account. The more is frequency; more will be the interest calculated.
B
How easily you can add money into your account: This option is incorrect.
Money can be added into account, but it depends on how often the money is deposited. This statement does not define compounding frequency, so this option is not correct.
C
What type of interest your account earns: This option is incorrect.
The type of interest will depend on the type of account. This statement also does not define compounding frequency.
D
What interest rate you can expect from your account: This option is incorrect.
The above statement says that what will be the expected rate of interest, it will depend upon the loan amount and the rate of interest, the individual is getting. So the statement does not define compounding frequency.
<u>Thus, compounding frequency refers to the number of periods for the interest is being compounded for a year. </u>
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Answer details:
Grade: Middle School
Subject: Accounting
Chapter: Fundamentals of accounting
Keywords: compounding frequency, refers to, how often your interest is calculated, and added back into, your account, easily, you can add, money, into your account, what type of, interest your, account earns, what interest, rate you can expect, from your account, periods, statement, expected, deposited, calculated, year.
