Interest compounded quarterly on a $100,000 principal amount at 12% for one year is
A) $ 9,273
B) $12,551
C) $12,000
D) none of these

Question

Quizplus · Accepted Answer

The formula for calculating the interest compounded quarterly is:

A = P(1 + r/n)^(nt)

where:
A = the ending balance
P = the principal amount
r = the annual interest rate
n = the number of times interest is compounded in a year
t = the number of years

In this case:
P = $100,000
r = 12% or 0.12
n = 4 (quarterly)
t = 1

A = $100,000(1 + 0.12/4)^(4*1)
A = $100,000(1.03)^4
A = $112,551

The interest earned is:
Interest = A - P
Interest = $112,551 - $100,000
Interest = $12,551

Therefore, the answer is B) $12,551.

Interest Compounded Quarterly on a $100,000 Principal Amount at 12