Question

In November 2010, ING Direct was offering 2.4% interest on its Orange Savings Account, with interest reinvested quarterly.† Find the associated exponential model for the value of a $3,000 deposit after t years

Answer 1

First, let's convert the nominal interest(r) into effective interest rate(i). The formula is

i = (1 + r/m)^m - 1
where m is the number of quarters in a year (m = 4)
i = (1 + 0.024/4)⁴ -1
i = 0.024217

The model would then be:
Future Worth = $3,000(1 + 0.024217)^t, where t is the number of years