Which of the following formulas represents the future value of $500 invested at 8% compounded quarterly for five years?
A) 500(1 + .08)5
B) 500(1 + .08)20
C) 500(1 + .02)5
D) 500(1 + .02)20

Question

Quizplus · Accepted Answer

The correct formula for the future value of an investment compounded quarterly is $P(1 + \frac{r}{n})^{nt}$, where $P$ is the principal amount ($500), $r$ is the annual interest rate (0.08), $n$ is the number of times the interest is compounded per year (4 for quarterly), and $t$ is the time the money is invested for in years (5). Substituting these values gives $500(1 + \frac{0.08}{4})^{4*5} = 500(1 + 0.02)^{20}$.

Which of the Following Formulas Represents the Future Value of $500