Question

If you deposit $4000 into an account paying 6% annual interest compounded quarterly, how much money will be in the account after 5 years? Show work.

Answer 1

If the nominal interest is 6%, then this means that quarterly interest is 1.5%, and annual compounded interest is (1.015)^4 = 1.0614, or 6.14%. Therefore, if we begin with $4000, after 5 years, we will have:
F = P(1+i)^n
F = (4000)(1.0614)^5 = $5,387.42.