Question

Calculate compound interest on $ 1000 over a period of 1 year at 10% per annum, if interest is compounded quarterly ?

Answer 1

Compound interest accumulation factor is :

P × (1 + i)ⁿ

P = principle amount = 1000

i = interest rate = 4%/ 4 = 1% - it is compounded quarterly

n = 1 × 4 = 4 since it is compounded quarterly

Doing the substitution :

1000 × (1.01)⁴ = 1.04060 × 1000 = 1040.60

Interest = 1040.60 - 1000 = 40. 60

$40.60