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20 February, 05:29

You deposit 12,000 in an account that pays 5% interest compounded quarterly.

A. Find the future value after one year

B. Use the future value formula for simple interest to determine the effective annual yield

Answers (1)
  1. 20 February, 07:14
    P is the principal amount, $12000.00.

    r is the interest rate, 5% per year, or in decimal form, 5/100=0.05.

    t is the time involved, 3 ... month (s) time periods.

    Since your interest rate is "per year" and you gave your time interval in "month (s) " we need to convert your time interval into "year" as well.

    Do this by dividing your time, 3 - month (s), by 12, since there's 12 months in 1 year.

    So, t is 0.25 ... year time periods.

    To find the simple interest, we multiply 12000 * 0.05 * 0.25 to get that:

    The interest is: $150.00

    Usually now, the interest is added onto the principal to figure some new amount after 3 month (s),

    or 12000.00 + 150.00 = 12150.00. For example:

    If you borrowed the $12000.00, you would now owe $12150.00

    If you loaned someone $12000.00, you would now be due $12150.00

    If owned something, like a $12000.00 bond, it would be worth $12150.00 now.
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