Question

1. If money is to quadruples in 13 years, what quarterly interest rate must the account earn? Assume quarterly compounding. Use formulas and equations to find the answer.

Answer 1

Let $ 1 is invested today ,so in 13 years Future value =$ 4

Number of quarters = 13 *4 = 52 quarters [4quarters in a year comprising of 3 months each]

using the formula ,

Future value =present value (1+i)^n

where i = quarterly interest rate

n=number of quarters

Now,putting the valurs in equation

4 =1 (1+i)^52

Multiplying both sides by ^1/52

(4)^1/52 = (1+i)^52*1/52

(4)^1/52 = (1+i)

(4)^.019231 = 1+i      [Find the value of (4)^.019231 using financial calculator )

1.027018 - 1 = =i

i = .027018 or 2.7018 %

quarterly interest rate = 2.70%