If you must calculate the present value of an amount at 12% compounded quarterly for two years,then the interest factor used in the calculation is
A)3% for eight periods.
B)12% for eight periods.
C)the interest factor for 12% for two periods divided by 4.
D)None of these are correct

Question

Quizplus · Accepted Answer

When interest is compounded quarterly, the annual interest rate is divided by the number of compounding periods per year. For a 12% annual rate compounded quarterly, the rate per period is 12%/4 = 3%. Since there are four quarters in a year and the time frame is two years, the total number of periods is 2*4 = 8. Therefore, the interest factor used is 3% for eight periods.

If You Must Calculate the Present Value of an Amount