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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Compound interest Bpp question

- This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.

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- October 30, 2022 at 10:50 am #670304
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

1.02×4 – 1 = 0.08243 = 8.243%

12,000 (1.08243)x3 = 15,218.81Please 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.

November 1, 2022 at 7:44 am #670442Interest 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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