Multiple compounding periods (FV): Carolyn Botti wants to invest $3,500 today in a money market fund that pays quarterly interest at 5.5 percent. She plans to fund a scholarship with the proceeds at Brisbane University. How much will Carolyn have at the end of seven years? (Round to the nearest dollar.)
A) $5,091
B) $3,548
C) $5,130
D) $5,075

Question

Quizplus · Accepted Answer

To solve the problem, we need to use the formula for future value of a lump sum with multiple compounding periods:

FV = PV x (1 + r/n)^(n*t)

Where:

PV = present value = $3,500
r = annual interest rate = 5.5%
n = number of compounding periods per year = 4 (since the interest is paid quarterly)
t = number of years = 7

Plugging in these values, we get:

FV = $3,500 x (1 + 0.055/4)^(4*7)
FV = $5,130.09

Rounding to the nearest dollar, we get:

FV = $5,130

Therefore, the best choice is C.

Multiple Compounding Periods (FV): Carolyn Botti Wants to Invest $3,500