3.4 Compounding frequency The compounding frequency used for an interest rate is the unit of measurement The difference between quarterly and annual compounding is analogous to the difference between miles and kilometers Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, C 2003, Shanghai Normal University3.4 Options, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, © 2003, Shanghai Normal University Compounding Frequency • The compounding frequency used for an interest rate is the unit of measurement • The difference between quarterly and annual compounding is analogous to the difference between miles and kilometers