Question

Fred invests $3000 at 4.01% compounded quarterly for 3 years. How much interest
will the investment yield?
State your answer in terms of dollars rounded to the nearest cent (hundredth).
Do not include a $ sign with your response.

Answer 1

Fred's interest from the investment after 3 years based on the amount invested will be $381.48.

The investment is compounded quarterly so the period and the rate need to converted to quarterly basis.

Interest = 4.01%/4 = 1.0025%

Period = 3 x 4 quarters = 12 quarters

Amount in 3 years is:

= Amount x ( 1 + rate) ^ period

= 3,000 x ( 1 + 1.0025%)¹²

= $3,381.48

The interest is:

= 3,381.48 - 3,000

= $381.48

In conclusion, the interest is $381.48.

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