Why does the future value of a given amount increase when interest is

Why does the future value of a given amount increase when interest is compounded nonannually as opposed to
annually?

What will be an ideal response?

ANSWER

Because “interest is earned on interest” more frequently as the length of the compounding period declines, there is an
inverse relationship between the length of the compounding period and the effective annual interest rate (and future
value): The shorter the compounding period is, the higher the effective interest rate will be (and the higher the future
value will be). Conversely, the longer the compounding period is, the lower the effective interest rate will be (and the
lower the future value will be).