Question

Use the formula for compound amount:$20,000 at 5% compounded quarterly for 3/4 of a year

Answer 1

Compound interest formula

$A=P(1+\frac{r}{n})^{nt}$

where

• A: final amount, in dollars

,

• P: principal, in dollars

,

• r: interest rate, as a decimal

,

• n: number of times interest is compounded per year

,

• t: time, in years

Substituting with P = $20,000, r = 0.05 (=5/100), n = 4 (quarterly means that the interest is compounded 4 times per year), and t = 3/4 years, we get:

$\begin{gathered} A=20,000(1+\frac{0.05}{4})^{4\cdot\frac{3}{4}} \\ A=20,000(1.0125)^3 \\ A=20759.41\text{ \ } \end{gathered}$