In which scenario might interest be compounded more than twice a year?

Interest on revolving credit lines can be compounded more frequently than twice a year because these lines of credit typically charge interest daily. This means that any outstanding balance accrues interest each day rather than waiting for a set compounding period. As borrowers draw on the credit line, the accrued interest is calculated daily based on the principal balance, leading to the possibility of interest being compounded at a much higher frequency than biannually.

In contrast, fixed-rate mortgages generally have a compounding interval stated in the terms of the agreement, which is often either monthly or semi-annually. Sinking fund plans usually involve accumulating funds over time for a specific purpose, such as paying off a loan; their compounding terms might vary but don't commonly apply to the context of interest on a credit line. Lastly, yearly payments would imply a single compounding instance per year, which is not representative of how interest typically operates within revolving credit products.