Question

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You invest an amount in an account that has a annual interest rate of 5%. If the interest is compounded quarterly for four years, find the equivalent interest rate. How many times will the money be compounded? (To find the quarterly, divide by 4)
8% and 4 times
1.25% and 1 time
8% and 16 times
1.25% and 16 times

Answer 1

Below

Explanation:

Equivalent interest rate in decimal form will be ( 1+i)^n - 1

where i = periodic interest in decimal = .05/4 n = periods = 4 per year

(1+ .05/4)^4 -1 = 5.09 % equivalent interest per year

.05 / 4 = .0125 or 1.25% 16 times ( 4 times per year x 4 years)