Steven's savings account switches from compounding interest annually to quarterly. His account earns 3% interest yearly. Steven puts $500 into his account and leaves it for five years. How much more money will he have in his account due to switching from annually to quarterly compounding?

Question

06-04-2020
Mathematics

contestada

Steven's savings account switches from compounding interest annually to quarterly. His account earns 3% interest yearly. Steven puts $500 into his account and leaves it for five years. How much more money will he have in his account due to switching from annually to quarterly compounding?

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rani01654 rani01654 · Answer 1 · 2020-04-08T09:13:07+02:00

Answer:

$0.95 more.

Step-by-step explanation:

The principal of $500, when invested at APR of 3% for 5 years compounded annually will become

[tex]S_1 = 500(1 + \frac{3}{100})^{5} = 579.64[/tex] dollars.

Again, the principal of $500, when invested at APR of 3% for 5 years compounded quarterly will become

[tex]S_2 = 500(1 + \frac{3}{100 \times 4})^{5 \times 4} = 580.59[/tex] dollars.

Therefore, Steven will have $(580.59 - 579.64) = $0.95 more money in his account due to switching from annually to quarterly compounding. (Answer)