Question

If you invest $1,000 in an account paying 4% interest compounded quarterly,lhow much money will you have after 3 years? A.)$1,500 B.)$1,005 C.)$1,220 D.)$1,225

Answer 1

C is closest to the actual result, $1126.03.

Explanation:

Use the Compound Amount formula: A = P(1 + r/n)^(nt), where:

P is the original principal; r is the interest rate as a decimal fraction; n is the number of compounding periods per year, and t is the number of years.

Then we have A = $1000(1 + 0.04/4)^(4*3), or

= $1000(1.01)^12 = $1126.03