Question

2% interest compounded quarterly for 5 years

Answer 1

Answer: A = P(1.005)²⁰

Explanation:

The formula for interest compounded over a period of time is:

`A=P_o\bigg(1+(r)/(n)\bigg)^(nt)\qquad \text{where}`

• A is accrued amount
• P₀ is the initial amount invested
• r is the interest rate (convert to a decimal)
• n is the number of times compounded in a year
• t is the number of years

It is given that r = 2% (0.02), n = quarterly (4), and t = 5

`A=P_o\bigg(1+(0.02)/(4)\bigg)^(4\cdot 5)\\\\A = P_o(1+0.005)^(20)\\\\A=P_o(1.005)^(20)`