What is the interest at the end of one year if the interest paid is compounded quarterly and annually?

Question

I deposit $100.000 at 1.2% per year in a money market account. What is the interest at the end of one year if the interest paid is compounded annually and quarterly?

Answer 1

Compounded annually:

P=100,000

r=1.2%

t= 1 year

First convert rate to decimal: 1.2/100=.012

 

B=P(1+r)^t

You plug in your values

B=(100,000)(.012)¹=101,200

I=B-P=1200

 

Compounded Quarterly:

P=100,000

r=1.2% per year

t=1 year

Convert rate to decimal per quarter

1.2%=.012 per year

.012/4=.003 per quarter

Convert time to quarters

1 year = 4 quarters

 

B=P(1+r)^t

B=(100,000)(1.003)⁴=101,205.41

I=B-P=1205.41