How much interest does $ 1,000 earn in three months at an interest rate of 6%, compounded quarterly? What is the balance after three months?

Question

This math problem is from a business math class and there teaching us semiannual compounding right now 

Answer 1

A = P(1+r/n)^(nt)

 

A = new amount

P = principal (original amount)

r = annual interest rate (as a decimal)

n = number of compounding periods / year

t = number of years

 

P = 1000

r = .06

n = 4 (compounding quarterly)

t = 1/4 (3 months = 1/4 of year)

 

A = 1000(1+.06/4)^(4*1/4) = 1000(1+.015)^1 = 1000(1.015) = 1015

 

Balance after 3 months = $1015

 

Interest = A - P = 1015 - 1000 = $15