Question

Suppose you decide to put $12,500 in an account earning 9% interest compounded quarterly. How much interest would you earn after 1 year?

Answer 1

Step-by-step explanation:

you add 9% to a number by multiplying that number by 1.09.

because adding 9% gives us in the end 109% of the original amount.

anyway, the formula for quarterly compounded interest is

Cq = P [ (1+r)^(4*n) – 1 ]

P is the starting principal amount

r is the interest rate per quarter (= interest rate / 4)

n would be the number of years (= 1 in our case).

so, the interest after 1 year is

12500((1 + 0.09/4)⁴ - 1) = 12500(1.0225⁴ - 1) =

= 12500 × 0.093083319 = $1,163.541485 ≈ $1,163.54