Question

You invest $600 in an account that has a annual interest rate of 7%, compounded quarterly for four years. What is the equivalent interest rate, and how many times will the money be compounded? Help pleasee!

Answer 1

Answer:

• equivalent rate: 7.186%
• compounded 16 times

Step-by-step explanation:

The equivalent interest rate is the rate that would have to be applied so it would earn the same amount in 1 year. It is computed from ...

  requiv = (1 +r/n)^n -1

  requiv = (1 +0.07/4)^4 -1 ≈ 7.186%

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"Compounded quarterly" means interest is compounded 4 times per year. In 4 years, it will be compounded 4·4 = 16 times.

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The balance in the account after 4 years is ...

  $600·(1 +.07/4)^(4·4) ≈ $791.96