Bob is looking to borrow for 11 years.

The bank advised Bob that the current compounding frequency is half-yearly

Calculate the number of time periods (n) of this borrowing

Question

Bob is looking to borrow for 11 years.

The bank advised Bob that the current compounding frequency is half-yearly

Calculate the number of time periods (n) of this borrowing

BlackTom AI · Accepted Answer

To determine the number of compounding time periods (n), start by identifying how many compounding events occur per year. The problem states the compounding frequency is half-yearly, which means there are 2 compounding periods in one year. Next, multiply the number of years by the number of periods per year: 11 years × 2 periods per year = 22 periods. Therefore, the total number of time periods n is 22. If someone thought in terms of monthly or quarterly compounding, they would use the same approach: multiply the years by the appropriate periods per year to obtain n. Here, the key is recognizing half-yearly compounding doubles the annual periods, yielding 22. Remember, n is not the number of years, but the total number of compounding intervals over the entire loan term. A common pitfall is confusing the frequency with the time span; always convert the time span into the same units as the compounding frequency before multiplying.

BFIN011 Week 4 Online Assessable Quiz - 45 minutes |LA001

Bob is looking to borrow for 11 years. The bank advised Bob that the current compounding frequency is half-yearly Calculate the number of time periods (n) of this borrowing

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