Question

Question 5 Unsaved

An amount of $1000 is deposited into a bank account that pays 4% interest compounded quarterly. If there are no other withdrawals or deposits, what will be the balance of the account after 3 years?

Question 5 options:

1000


1125


1127


1400

Answer 1

We can use the compound interest formula

F=P(1+i)^n

where

F=Future value of investment to be found

P=present value of investment ($1000)

i=interest per period (1/4 year)=0.04/4=0.01

n=number of periods (3 years * 4 quarters = 12)

Substitute or "Plug in" values, so to speak,

F=1000*(1+0.01)^12

use a calculator to do the sum

=1126.83 (to the nearest cent, and use the proper rounding rules)