Question

At 12% interest compounded quarterly for 5 years, what is the interest rate and the number of periods that will be computed before a present or future value table can be used?

Answer 1

The interest rate will be 3% and the number of periods will be 20.

Step by step explanation:

Given:

• Rate of interest = 12%

Compounded Quarterly

• Time period = 5 Years.

To be found: The interest rate and the number of periods.

Formula Used:

• 1 Year = 4 Quarters.

Since we have given the rate of interest is 12% which is compounded annually. So, let's find out the rate of interest for each quarter.

Since, 1 year = 4 quarter
And 12% is the rate of interest for the whole year.

If in 1 year rate of interest is 12%. Then,

4 quarters = 12%

1 quarter$=\frac{12}{4}$

             $=3$
∴ In each quarter rate of interest will be 3%.

Now, let us find the number of periods,

Since 1 year = 4 quarter

$5$ year$=5*4$

         $=20$
∴ Number of periods will be 20.

So, the interest rate will be 3% and the number of periods will be 20.