Question

Mathew deposits 400800.00 kina with the bank which offers 5½% interest per annum. calculate the interest earned after four years if it is compounded every three months?

Answer 1

Solution

For this case we can use the following formula:

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

Where:

P= 400800 = present value

A= future value

r= 0.055 interest rate

n= 4, number of times that the interest is compund in a year (quarterly)

t= 4 years

Replacing we got:

$A=400800(1+\frac{0.055}{4})^{4\cdot4}=498679.58$

then the interest would be:

$I=A-P=498679.58-400800=97879.58$