What does Compounded quarterly mean to do and 3-5 mean?

Question

In this scenario you have $5000 to invest and you want to know which of the following investment situations will give you the most money at the end of 5 years. The interest rate for all the situations is 6%. *MAKE SURE YOU PUT YOUR EXPONENTS IN PARENTHESES!

3.Calculate the investment if it is compounded quarterly (four times a year).

4.Calculate the investment if it is compounded monthly(12 times a year).

5.Calculate the investment if it is compounded daily(365 times a year).

Also since one of them is compounded quarterly , I think the equation is 5000(1.015)^4

because 0.06/4 is 0.015 and plus 1=1.015?

idk if this is correct since it says 4 times a year?? and the others I have no idea! please explain!

Answer 1

Here's the formula: fv=p(1+int/c)^(nt)

future value

principal

int 6%=.06

compound

yr

times/yr=usually, t=compound

Answer 2

Your calculation for the quarterly compounding is correct, 1 + 0.06 / 4

The exponent is incorrect. It should be (5)(4) = 20.

Do the same for the other two.

Monthly is 1 + 0.06 / 12, and the exponent is 5(12)

Daily is 1 + 0.06 / 365, and the exponent is (5)(365)