Gavin deposited money into his savings account that is compounded annually at an interest rate of 9%. Gavin thought the equivalent quarterly interest rate would be 2.25%. Is Gavin correct? If he is, explain why. If he is not correct, state what the equivalent quarterly interest rate is and show how you got your answer

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Snoop

Mathematics

13 April, 08:48

Gavin deposited money into his savings account that is compounded annually at an interest rate of 9%. Gavin thought the equivalent quarterly interest rate would be 2.25%. Is Gavin correct? If he is, explain why. If he is not correct, state what the equivalent quarterly interest rate is and show how you got your answer

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Siena Meyers · Answer 1

Gavin is correct. This problem is about converting 9% per year to how many percent per quarter. The rate is still the same. It only differed in the time period. So, through dimensional analysis,

9% per year * (1 year / 4 quarters) = 2.25% per quarter

If he was asked to convert 9% per year to how many percent per quarter compounded quarterly, then you will not simply divide by four. This is because compounding is not linear.