Question

You invest $500 in an account that has a annual interest rate of 5%, compounded quarterly for four years. What is the equivalent interest rate, and how many times will the money be compounded

Answer 1

1.25% and 16 times

Explanation:

Answer 2

1.25% and 16 times

Explanation:

Since the interest is compounded quarterly it will be compounded 4 times a year. So 4 x 4 is 16, so it will be compounded 16 times.

Then you have to divide the 5% by four to get how much will be compounded each quarter. So, (0.05 / 4) = 0.0125, which is 1.25%.