Question

Aaron puts $1,000 in an account that pays 10% interest compounded quarterly. He leaves it in the account for six months. Estimate how much interest he earns.

Answer 1

Answer: $50.63 --- Interest

Explanation:

Step 1

Using the formulae

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

Where

A = principal + interest Amount

P = Principal Amount = $1000

t = Time in years= 6months = 0.5 years

n = number of compounding periods= quarterly =4

Step 2

6 months = 6/12 = 0.5 years

Rate = 10 % = 0.1

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

= 1000 ( 1 + 0.1/4)^(4 x 0.5)

=1000(1 +0.025)^2

= 1000(1.025)^2

= 1000 x 1.050625

A= $1,050.625

but A = principal + interest Amount

Interest = A- Principal=$1,050.625-$1,000

=$50.625