Question

Elton opened a compound interest savings account with $5500 in principal and an interest rate of 2.8%. If interest is compounded quarterly, how much is in the account after 4 years?
interest compounded quarterly: A = P (1 + r/4)4t

A.
$6149.42

B.
$6142.36

C.
$649.42

D.
$642.36

Answer 1

Since it's paid quarterly, then the yearly interest of 2.8% should be divided by 4.
Since the payment is I/4th of the year, then the number of payment will 4 times more:
A= P(1+i)ⁿ, and for a period of 4, A = P(1+i/4)⁴ⁿ

A=5500(1+0.028/4)⁴ˣ⁴ = 5500(1+0.028/4)¹⁶ = $6149.42 (answer A)