Why there's inverse relation b/w continuous compounding interest rate and no. of periods ?

CFA Level II Derivatives
#1

Hey guys,

It might be a stupid question, but i wonder if someone explain me that why as “n” increases the compounded/continuous rate of interest decreases ?

#2

The more frequently you compound, the sooner your interest starts earning interest, so the greater the amount of interest you earn. Thus, for a given nominal rate, the more frequently you compound, the higher your _ effective _ rate. Therefore, for a given effective rate, the more frequently you compound, the lower your _ nominal _ rate.

#3

Great! as always, Thanks :slight_smile:

#4

D’accord.