SOLUTION: Find how much interest ​$25,000 earns in 4 years in a certificate of deposit paying 7.5% interest compounded quarterly.
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Question 1097064: Find how much interest $25,000 earns in 4 years in a certificate of deposit paying 7.5% interest compounded quarterly.
Answer by greenestamps(13198) (Show Source): You can put this solution on YOUR website!
The annual interest rate is 7.5%, or 0.075.
Since interest is compounded quarterly, the quarterly interest rate is 0.075/4 = 0.01875.
Each time interest is credited to a current amount x, the interest is 0.01875 times x, so the new balance with interest is x + 0.01875x, or 1.01875 times x. The 1.01875 is the "growth factor" -- how much the current amount gets multiplied by each time interest is applied.
If the interest is compounded quarterly for 4 years, that growth factor gets applied to the beginning balance 4*4=16 times.
So the balance at the end of 4 years in your problem is
And so the interest earned is
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