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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?

  • math -

    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
    periods.

    Pt = 12,000(1.01625)^4 = $12,799.22.

    B. APY = I/Po.

    I=Pt - Po = 12,799.22 - 12,000 = 799.22
    = Interest.

    APY=(799.22/12000)*100% = 6.66%.=Annual
    Percentage Yield.

  • math -

    Formula: APY = (Pt-Po) / Po

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