Question

You are going to perform a Future Value calculation. Your Interest Rate is 14%. You will have QUARTERLY compounding. What is your "I"?

Answer 1

Solution:

The formula for calculating the future value of an Investment with quarterly compounding is

= P * [ ( 1 + ( I/n) ) ^{n * t} ]

Where

P = Principal   ;   I = rate of interest   ; n = No. of compounding periods per year ; t = Time in years

As per the information given in the question

Annual Interest rate = 14 %   ; No. of compounding periods per year = Quarterly compounding = 4

Thus I = 14 % / No. of compounding periods in a year

= 14 % / 4 = 3.5 %

Thus I =Interest rate for a future value calculation with quarterly compounding = 3.5 %