2) A bank is offering 12 percent compounded quarterly. If you put $100 in an account, how much will you have at the end of one year? What’s the EAR? How much will you have at the end of two years?
We use the formula:
A=P(1+r/4)^4n
where
A=future value
P=present value
r=rate of interest
n=time period.
At end of one year;
A=$100*(1+0.12/4)^(4*1)
=100*1.12550881
=$112.55(Approx).
At end of two years;
A=$100*(1+0.12/4)^(4*2)
=100*1.26677008
=$126.68(Approx).
EAR=[(1+APR/m)^m]-1
where m=compounding periods
=[(1+0.12/4)^4]-1
=12.55%(Approx).
2) A bank is offering 12 percent compounded quarterly. If you put $100 in an account,...
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