Question

How much more would $5,656.30 earn in 5 years, compounded monthly at 4.1%, when compared to the interest on $5,656.30 over 5 years, at 4.1% compounded quarterly?

Answer 1

`\$4.81`

Explanation:

we know that

The compound interest formula is equal to

`A=P(1+(r)/(n))^(nt)`

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

n is the number of times interest is compounded per year

step 1

in this problem we have

`t=5\ years\\ P=\$5,656.30\\ r=0.041\\n=12`

substitute in the formula above

`A=\$5,656.30(1+(0.041)/(12))^(12*5)=\$6,940.82`

step 2

in this problem we have

`t=5\ years\\ P=\$5,656.30\\ r=0.041\\n=4`

substitute in the formula above

`A=\$5,656.30(1+(0.041)/(4))^(4*5)=\$6,936.01`

step 3

Find the difference

`\$6,940.82-\$6,936.01=\$4.81`