Question

Use the compound interest formula for compounding more than once a year to determine the accumulated balance after the stated period. $1200 deposit at an APR of 4% with quarterly compounding for 2 years.

Answer 1

1299.43

Explanation: {'=raise to the power}

A= P(1+r/n) 'nt

A= final amount, P = principal amount, r= rate of interest per time, n =no of time periods, t = no of times interest compounds in a time period.

In this case: A= ? , P= 1200, t= year, n= no of years i.e 2, t = compounding in a year i.e 4 times (quarterly), r = APR 4%.

A= 1200 (1+ 0.04/4) '(2x4)

= 1200 (1+ 0.01) '(2x4)

= 1200 (1.01) '8

= 1200 (1.083)

= 1299.43