Fractions, Decimals, Percents, Ratios Part 2 - Compunding Interest

[sisi]

we discussed this before, check this post out

@Serena

I’m currently watching the percent-ratio video on week 1 day 2 (part 2). In this video (@47:12), you are doing and explaining a problem on compound interest, which is the following:

“if an initial amount of $1000 has an annual interest rate of 12% and compounded every 3 months, what will be the result after a year ?”

when solving, you had 1000(1.04)^4. you explained that the principal is compounded every 3 months thus the result 1.04, which I understand comes from (1+(0.12)/3). However, I think there’s a mistake there about the number of times the interest is compounded.

This is my reasoning:

every 3 months = quarterly → interest is compounded 4 times in a year thus, the new interest becomes r’= 0.12/4=0.03 thus 1+0.3

therefore the final amount will be A=1000(1.03)^(4*1). with 1 in this case representing the number of years.

Thanks!