Suppose you invest $15,000 at 7.25 interest, compounded quarterly for 6 years. What is your final balance? How much interest will you have earned?

Answer 1

The compound interest formula is A = P (1 + ^r/_n)^nt

where A = final amount, P = initial principal balance r = interest rate

n = number of times interest applied per time period t = number of time periods elapsed

Substitute the given values into the equation with n=4 (quarterly) and t = 6 (years) to get:

A = 15000 (1 + ^0.0725/₄)^4.6

=> A = 15000 (1 + ^0.0725/₄)²⁴

=> A = $23,084

principal = $15,000, total amount = $23,084, interest earned = $8,084

To double-check your answer, there are many online compound interest calculators. Or, roughly, we know we have principal of 15000 so our total must be more than this. 7.25% compounded quarterly will be less than 10% a year, or 1500. And 6 years of 1500 would be 9000. So I'm expecting my total to be under $24,000 (which it is).