Question

What is the future value of a deposit of 5,000 euros, if interest on it is accrued quarterly during 3 years, based on rate of return of 12% per annum?

Answer 1

Let the current deposit amount be P = 5,000 euros.

Rate of return = 12%

Interest is accrued quarterly during 3 years.

Thus, effective interest rate (r) = interest for a period of one quarter = 12%/4 = 3%

Time period (t) = Number of years * Number of periods in one year = 3*4 = 12

Let the future value, at the end of year 3, of the deposit be P1.

Thus, P1 = P*[(1 + r)^t]

Thus, P1 = 5,000*[1.03^12] = 7,128.80 euros.

Thus, 7,128.80 euros is the future value of a deposit of 5,000 euros, if interest on it is accrued quarterly during 3 years, based on rate of return of 12% per annum.