Question

Pearl Henry deposited $18,850 in a money market certificate that provides interest of 8% compounded quarterly if the amount is maintained for 3 years. How much will Pearl Henry have at the end of 3 years

Answer 1

Answer: $23,906.36

Explanation:

GIVEN THE FOLLOWING ;

Deposit(present value(PV)) = $18,850

Interest rate (r) = 8%

Time(t) = 3years

However, interest is compounded quaterly(every 3 months), 4 times a year.

Therefore,

Interest rate(r) = 8% ÷ 4 = 0.02

Time(t) = 3 × 4 = 12

Earning after 3 years( future value(FV) ) =

FV = PV × (1 + r)^t

FV = $18,850 × (1 + 0.02)^12

FV = $18,850 × 1.02^12

FV = $23,906.36

Answer 2

Answer:

Future Value= $23,906.36

Explanation:

Giving the following information:

Pearl Henry deposited $18,850 in a money market certificate that provides an interest of 8% compounded quarterly if the amount is maintained for 3 years.

First, we need to calculate the real interest rate:

Interest rate= 0.08/4= 0.02

To calculate the future value, we need to use the following formula:

FV= PV*(1+i)^n

n= 3*4= 12

FV= 18,850*(1.02^12)= $23,906.36