Question

Lynn has an account that ears interest at annual rate of 5% percent. Interest is compounded quarterly. Lynn’s account is $4000. What is the balance in her account at the end of the year

Answer 1

Answer:

Ending balance in account = $4,203.8 (Approx.)

Explanation:

Given:

Starting balance in account = $4,000

Rate of interest annually = 5%

Number of year = 1

Find:

Ending balance in account

Computation:

Compounded quarterly

So,

Number of interest period = 1 x 4 = 4

Rate of interest quarterly = 5% / 4 = 1.25% = 0.0125

So,

A = P[1+r]ⁿ

Ending balance in account = 4,000[1+0.0125]⁴

Ending balance in account = 4,000[1.0125]⁴

Ending balance in account = 4,000[1.05094]

Ending balance in account = 4203.76

Ending balance in account = $4,203.8 (Approx.)