I need assistance with this question

Question

If $850 is invested in an account that earns 2.6% yearly interested compounded quarterly, the which of the following is the worth of this investment after 5 years?

1)$960.50

2)966.40

3)967.60

4)968.25

Answer 1

Hi Carl,

The answer can be found by using this equation:

850 * (1 + (0.026/4)^(5*4)) = $967.597 = $967.60

To break this down, $850 would be your initial investment amount. Since the annual interest is 2.6%, the quarterly interest is 1/4 of that. This translates to (0.026/4) when put into the equation. The "1" in the equation represents the full amount/100% of the initial investment. So the amount that the account is worth at any given time is:

850 * (1 + (0.026/4))^(n)

In this case, n is the number of quarters that have passed. Since the question asks for the value over 5 years, and there are 4 quarters in each year, n = 20.

So our final equation will give us:

850 * (1 + (0.026/4)^(20)) = $967.597 = $967.60