Suppose that $2000 is invested in an account that pays 3% annually and is left for 5 years. How much will be in the account if interest is compounded quarterly?

Answer 1

Since the interest is compounded quarterly, what's really happening is that there is (3% / 4) = 0.75% interest paid out every quarter, for 5×4 = 20 quarters.

The total amount of money in the account will then be $2000 · (1+0.0075)²⁰ ≈ $2322.