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Compounding interest quarterly

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Compounding interest quarterly

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by AvatarJohn Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • September 28, 2014 at 4:31 am #202013
    AvatarBhagat
    Participant
    • Topics: 17
    • Replies: 19
    • ☆

    Dear Sir,
    Although this question is one of the basics from capital budgeting, I’m getting two different answers. Please assist me in answering the following:
    If a single sum of $12000 is invested at 8% per annum with interest compounded quarterly, the amount to which the principal will have grown by the end of year three is approximately
    A. 15117
    B. 9528
    C. 15219
    D. 30924

    I’m ending up with the answers A and C. I don’t know which one is right. I’ve tried two different methods and although they should yield the same answer, I’m getting a different one when switching methods. 🙁

    September 28, 2014 at 9:35 am #202025
    AvatarJohn Moffat
    Keymaster
    • Topics: 57
    • Replies: 54839
    • ☆☆☆☆☆

    8% per annum is 2% per quarter.

    3 years is 12 quarters, and so it will have grown to 12,000 x (1.02^12) = 15,219

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