Shandy opens a bank CD with $1000 for a 2-year term at a rate of 3% (known as th

Question

Shandy opens a bank CD with $1000 for a 2-year term at a rate of 3% (known as the
Annual Percentage Rate or APR), compounded quarterly. To compound quarterly, a
bank does the following: it takes the APR, and since there are 4 quarters in a year,
divides the APR by 4, to get .03/4 = .0075. It then computes the interest on your current balance at the end of each quarter, and adds that interest to the account. Notice that the amount in the account is changing after each interest payment.
What will be the balance in Shandy’s account after one year?

Explanation / Answer

Just multiply your balance times the rate and add that to your balance each quarter, like this: first quarter - 1000 x 0.0075 = 7.5 the balance is now 1000 + 7.5 = 1007.5 second quarter - 1007.5 x 0.0075 = 7.55625 the balance is now 1007.5 + 7.55625 = 1015.05625 third quarter - 1015.05625 x 0.0075 = 7.61292188 the balance is now 1015.05625 + 7.61292188 = 1022.66917 foruth quarter - 1022.66917 x 0.0075 = 7.67001879 the balance is now 1022.66917 + 7.67001879 = 1030.33919 After a year the balance is $1030.34

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