What amount would you have after 10 years by investing $500 at the end of every month if your investment earns 14% compounded quarterly?
A) $129,534
B) $74,407
C) $128,294
D) $116,024
E) $87,398

Question

Quizplus · Accepted Answer

To solve this, we use the future value of an annuity formula: FV = P * [((1 + r)^n - 1) / r], where P is the payment amount, r is the interest rate per period, and n is the total number of payments. Since the interest is compounded quarterly but payments are monthly, we adjust the annual interest rate (14% or 0.14) to a quarterly rate (0.14/4 = 0.035) and calculate the number of quarters in 10 years (10*4 = 40). However, this approach is incorrect for monthly payments with quarterly compounding. The correct method involves using a monthly compounding approach or a financial calculator/Excel for precise calculation due to the mismatch in compounding and payment periods. The correct answer, based on the options provided and understanding the typical outcome of such investments, is closely approximated by using financial calculators or specific formulas designed for mixed compounding and payment intervals, leading to the selection of option C as the closest match.

What Amount Would You Have After 10 Years by Investing