Good Morning John,
If a single sum of $12,000 is invested at 8% per year with interest compounded quarterly, what is the amount to which the principal will have grown by the end of year three? (approximately)
Ans: 8%per year equals 2% quarter
1.02x4 - 1 = 0.08243 = 8.243%
12,000 (1.08243)x3 = 15,218.81
Please can you explain why do we subtract by one?
Wouldn't we do 12,000 x 1.02(x4) to get the answer?
Many thanks.
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Compound interest Bpp question
3y ago#1Interest is added quarterly and so you can either do as your books answer does and calculate the equivalent annual rate (and I explain this in my free lectures) or alternatively you could just multiply by 1.02^12, which will give the same result.
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