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28 March, 15:48

You have savings of $100. You plan to save another $100 at the beginning of each year for 5 years. The account pays annual interest of 8 percent, compounded quarterly. The ending balance (principal plus interest) will be $ at the end of 5 years.

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  1. 28 March, 16:18
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    Answer: The ending balance (principal plus interest) will be $638.10

    Explanation:

    To calculate this we need to use the Quarterly Interest formula

    CI quarterly = P (1 + (R/4) / 100) ^4n

    CI is the compound interest payable

    I is the initial principal sum of money

    R is the interest rate in percentage at which interest accrued over time

    n is the time period in years

    For the first year the total amount plus interests is

    CI = $ 100 (1 + (8/4) / 100) ^4x1

    CI = $100 (1 + 2/100) ^4

    CI = $100 (1 + 0.02) ^4

    CI = $100 * 1.0824

    CI = $108.24

    For the second year = $100 + $108.24 = $208.24

    CI = $ 208.24 * 1.0824

    CI = $225.41

    For the third year = $100 + $ 225.41 = $325.41

    CI = $325.41 * 1.0824

    CI = $352.23

    For the fourth year = $100 + $ $352.23 = $452.23

    CI = $452.23 * 1.0824

    CI = $ 489.51

    For the fifth year = $100 + $489.51 = $589.51

    CI = $589.51 * 1.0824

    CI = $ 638.10
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