Question

16. Suppose you obtain a $1000 T-note with a 3% interest rate, compounded quarterly, with maturity in 3 years. How much interest will you earn? Round your answer to cents (two decimal places)if necessary.Interest: $

Answer 1

ANSWER

$\ 93.81$

EXPLANATION

We want to find the interest in 3 years.

To do this, we apply the formula for Compound Interest:

$I=P(1+\frac{r}{n})^{nt}-P$

where P = principal = $1,000

r = rate = 3% = 0.03

n = number of times compounded per year = 4

t = number of years = 3 years

Therefore, we have that:

$\begin{gathered} I=1000(1+\frac{0.03}{4})^{(4\cdot3)}-1000 \\ I=1000(1.0075)^{12}-1000 \\ I=1093.81-1000 \\ I=\ 93.81 \end{gathered}$

That is the compound interest.