Question

If interest is compounded every 3 months, how often is it compounded?

Answer 1

Answer:

c. quarterly

Step-by-step explanation:

To start with 1 year is equal to twelve months

3months out of 12 months will be;

3/12= 1/4

Here it is compounded quarterly and n=4  where n is the number of compoundings a year.

Lets study the compound interest formula;

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

where;

A=The ending amount

P=Starting amount

r=rate of interest expressed as a decimal

n=number of compoundings a year

t=total number of years

The number of compoundings in any one year  can be an interest compounded  yearly where n=1, semi-annually with n=2, quarterly where n=4, monthly where n=12, weekly and n=52 and finaly daily with n=365.