Question

A $1,200 deposit earns over a three-year period. What interest is earned after 3 years if the interest is compounded quarterly? Semi-annually? Monthly?

a) Quarterly interest
b) Semi-annual interest
c) Monthly interest
d) Insufficient information

Answer 1

To calculate the interest earned after 3 years with quarterly, semi-annual, and monthly compounding, you can use the appropriate formulas based on the compounding periods. The interest earned for each period is calculated using these formulas.

Step-by-step explanation:

To calculate the interest earned after 3 years with quarterly compounding, we use the formula:

Quarterly interest = Principal * (1 + (Annual interest rate / Number of compounding periods)) ^ (Number of compounding periods * Number of years) - Principal

Using this formula, the quarterly interest earned will be $XXX.

Similarly, for semi-annual compounding, we use the formula:

Semi-annual interest = Principal * (1 + (Annual interest rate / Number of compounding periods)) ^ (Number of compounding periods * Number of years) - Principal

Using this formula, the semi-annual interest earned will be $XXX.

Finally, for monthly compounding:

Monthly interest = Principal * (1 + (Annual interest rate / Number of compounding periods)) ^ (Number of compounding periods * Number of years) - Principal

Using this formula, the monthly interest earned will be $XXX.