posted by AR on .
Theo deposited $1,250 in a savings account that pays 6% interest,
compounded quarterly. What was his balance at the end of the second
quarter after the interest had been added?
1250 * 0.06 = $75 yearly interest
75 / 4 = $18.75 first quarter interest
1250 + 18.75 = $1,268.75 balance at the end of the first quarter
Repeat the above steps to find the balance after the second quarter.
Actually the first steps are right except with compound interest you earn interest on interest, so just adding another 18.75 would not solve it. You have to account for the interest you earn the 1st quarter. So I got 1287.78
Amount = 1250(1 + .015)^2