Question

You deposited $300 on July 1 and kept your money on deposit for one year. You made

no deposits or withdrawals. If your bank pays 2.5% interest compounded quarterly,
what compound interest will you earn in one year?

Answer 1

$7.57

Step-by-step explanation:

The amount of compound interest is the difference between the amount at the end of the year and the principal amount.

The amount of end of the year can be determined using the formula

A= P x ( 1+ r) ^n

where A = amount,

P =principal amount : $300

r= interest rate 2.5% per year, which is equal to 2.5/4 per quarter=0.625% or 0.00625

n= time in years: one year has 4 quarters

A = $300( 1 + 0.00625)^4

A = $300(1.00625)^4

A= $300 x 1.0252353

A=$307.570

Amount of compound interest

=$307.57 -$300

=$7.57