The future value of $1,000 compounded annually for 8 years at 12% may be calculated with the following formula: FV = $1,000 * (1 + 12%) ⁸
If the same $1,000 was compounded quarterly,what formula would you use to calculate the FV?

Question

Quizplus · Accepted Answer

When compounding quarterly, we need to adjust the interest rate by dividing it by 4 and also multiply the number of years by 4. Therefore, the formula would be FV = $1,000 * (1 + 3%)^(4*8) = $1,000 * (1 + 3%)^32, which is equivalent to FV = $1,000 * (1 + 12%)^8 as in option C.

The Future Value of $1,000 Compounded Annually for 8 Years