Posted by marie on .
Using the present value formula
you deposit $12,000 in an account that pays 6.5% interest compounded quarterly.
A. find the future value after one year?
B. Use the future value formula for simple interest to determine the effective annual yield?
A. Pt = Po(1+r)^n,
r = 6.5% / 4 = 1.625% = 0.01625 = Quarterly % rate expressed as adecimal.
n = 4 comp./yr * 1 yr = 4 compounding
Pt = 12,000(1.01625)^4 = $12,799.22.
B. APY = I/Po.
I=Pt - Po = 12,799.22 - 12,000 = 799.22
APY=(799.22/12000)*100% = 6.66%.=Annual
Formula: APY = (Pt-Po) / Po