SOLUTION: Hello, I'm a bit confused with my homework. I am told to find the compound interest but I am having a problem with the compound interval and length of time. The principle is $500.

Algebra ->  Percentages: Solvers, Trainers, Word Problems and pie charts -> SOLUTION: Hello, I'm a bit confused with my homework. I am told to find the compound interest but I am having a problem with the compound interval and length of time. The principle is $500.      Log On


   

Question 952447: Hello, I'm a bit confused with my homework. I am told to find the compound interest but I am having a problem with the compound interval and length of time.
The principle is $500.00, the interest rate is 4%, the compounding interval is quarterly, and the length of time is 1 year. I know all the rest except the compound interval and time. How do I do that? Is it 4/12? My score book says the right answer is 1/4. Please help me understand
Answer by josmiceli(19441) About Me  (Show Source):
You can put this solution on YOUR website!
+A+=+P%2A%28+1+%2B+r%2Fn+%29%5E%28n%2At%29+
--------------------------
+t+ is the number of years of the investment period
+n+ is the number of times the interest gets
compounded each year
---------------------------
You are given:
+t+=+1+ yr
Compounding quarterly means
+n+=+4+
So, the compounding is happening
every +3+ months, since +12%2F4+=+3+
and
+P+=+500+
--------------------------------------
+A+=+500%2A%28+1+%2B+.04%2F4+%29%5E%284%2A1%29+
+A+=+500%2A%28+1+%2B+.01+%29%5E4+
+A+=+500%2A1.01%5E4+
+A+=+500%2A1.040604+
+A+=+520.30+
This is Interest + Principle after 1 yr, so the
interest earned is $20.30