Question

Suppose that $2000 is placed in a savings account at an annual rate of 4.6%, compounded quarterly. Assuming that no withdrawals are made, how long will it take for the account to grow to $3000? Do not round any intermediate computations, and round your answer to the nearest hundredth.
If necessary, refer to the list of financial formulas.

Answer 1

Answer:

It will take 35.46 quarters for the account to grow to $3000.

Step-by-step explanation:

Since the annual rate is compounded quarterly, this can be calculated using the formula for calculating the future value as follows:

FV = PV * (1 + r)^n ............................ (1)

Where;

FV = future value or the amount the deposit expected to grow to = $3,000

PV = Present value or the amount place in the savings = $2,000

r = Quarterly rate = Annual rate / 4 = 4.6% / 4 = 0.046 / 4 = 0.0115

n = number of quarters it will take for the loan to grow to $3000 = ?

Substituting the values into equation (1) and solve for n, we have:

$3,000 = $2,000 * (1 + 0.0115)^n

$3,000 / $2,000 = (1.0115)^n

1.50 = (1.0115)^n

Loglinearise both sides, we have:

log(1.50) = n log(1.0115)

0.176091259055681 = n * 0.00496588710682352

n = 0.176091259055681 / 0.00496588710682352

n = 35.4601816891322

Rounding to the nearest hundredth, which also implies to rounding to 2 decimal places, we have:

n = 35.46

Since the the annual rate is compounded quarterly, it will therefore take 35.46 quarters for the account to grow to $3000.