__A person invests $500 in an account that earns a nominal yearly interest rate of 4%. Someone, please solve this little by little I'm really confused!__

GAMEMASTERX40 Mar 19, 2019

#1**0 **

a. if the interest rate is 4% , the account will grow 4% more than the year before EACH YEAR

initial 500 deposit will be worth 500 x 1.04 at the end of year 1 = $520

at the end of the SECOND year, due to compounding, it will be worth 520 x 1.04=$ 540.80

after 10 years the formula becomes 500 (1.04)^10 = $ 740.12

b.1.04 is the interst applied PER YEAR .... now the compounding period is 3 months....4 PERIODS per year..

..the periodic interest is then .04/4 = .01/period for 40 periods (10 years)

and the formula becomes

500 (1.01)^40 = 744.43 NOTE: Due to COMPOUNDING this works out to be GREATER than 4% per year

(perhaps you have heard "APR" = annual percentage rate or

APY = annual percentage yield)

c. 1.04 = (1+x)^4 x = .009853 or 0..09853 % per quarter compounding

d. 500 (1+ .009853)^40 = 740.12

ElectricPavlov Mar 19, 2019

#3**0 **

You are welcome....this stuff will be very important to you later in your financial life (REALLY!)....learn it well! ~EP

ElectricPavlov Mar 19, 2019