Question

Jennifer deposited $54,000 at Bank of America at 20% interest compounded quarterly. a) What

is the effective rate (APY)? b) What will Jennifer’s balance be in a year?
a) APY (rounded to nearest tenth

Answer 1

a) The effective rate (APY) is 21.55%.

b) Jennifer's balance (future value of the deposit) after a year is $65,637.34.

The future value can be determined using an online finance calculator that compounds the interest for a period.

The formula for calculating APY is:
`(1+r/n)^n - 1`

Where r = period rate and n = number of compounding periods.

`(1+0.2/4)^4 - 1`

=
`1.05^4 - 1`

= 1.2155 - 1

= 0.2155

= 21.55% (0.2155 x 100)

b) Jennifer's balance after 1 year:

N (# of periods) = 4 quarters (1 year x 4)

I/Y (Interest per year) = 20%

PV (Present Value) = $54,000

PMT (Periodic Payment) = $0

Results:

FV (Future Value) = $65,637.34

Total Interest = $11,637.34