Question

Amelia plans to open a compound interest savings account with a $22,000 deposit at a bank with an annual interest rate of 5.25%. How much more interest will she earn over 10 years if she chooses an account that compounds interest quarterly instead of annually?

Answer 1

Compound interest formula

A = P(1+r/n)^(nt)

annually:

quarterly:

A = 22,000 ( 1 + 0.0525/1 )^10  = 36,698.11

quarterly:

A = 22,000 ( 1 + 0.0525/4 )^(4*10 ) = 37,063.29

37,063.29 - 36,698.11 = 365.18

answer: compound interest quarterly earned $365.18 more than annually