Compounding interest more frequently than annually increases the future value of an investment. The reason lies in the compounding effect, where interest is not only earned on the initial principal but also on the accumulated interest from previous periods. True, Michaela. Increasing the compounding term indeed does cause the FV of a single lump sum to increase, holding all other variables constant. Class, what do you think would happen if we made the compounding frequency really large... say 1,000,000 times per day? Would FV explode to infinity? Why don't you try it out by calculating an APR vs. an EAR with a very large compounding frequency. I look forward to your findings and explanations. So long as you come up with something original to say (and not just parrot one another), a good few of you can respond to this post. Just make the effort to make your response reveal something new