Question

2. Suppose you obtain a $3,000 T - note with a 3% annual rate, paid quarterly, with maturity in 5 years. How much interest will you earn?

Answer 1

You will earn $483.55 in interest.

Explanation:

The compound interest formula is given by:

`A(t) = P(1 + (r)/(n))^(nt)`

Where A(t) is the amount of money after t years, P is the principal(the initial sum of money), r is the interest rate(as a decimal value), n is the number of times that interest is compounded per year and t is the time in years for which the money is invested or borrowed.

$3,000 T - note with a 3% annual rate

This means that
`P = 3000, r = 0.03`

Paid quarterly

Quarterly is 4 times per year, so
`n = 4`

Maturity in 5 years.

This means that
`t = 5`

How much interest will you earn?

Interest is the final amount subtracted by the principal.

Final amount:

A(5).

`A(t) = P(1 + (r)/(n))^(nt)`

`A(5) = 3000(1 + (0.03)/(4))^(4*5)`

`A(5) = 3483.55`

Interest:

$3,483.55 - $3,000 = $483.55

You will earn $483.55 in interest.