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Question

When Lauren was born on January 1, 1990, her grandparents put 1000 in a savings account in her name. The account earned 7.5%$ annual interest compounded quarterly every three months. To the nearest dollar, how much money was in her account when she turned two?

Accepted Answer

The annual interest rate is 7.5 percent, so each quarter, the investment is compounded at the rate of 7.5/4 = 1.875 percent. In two years, there are eight quarters, so the investment will have grown to 1000 1.01875^8 = 1160, to the nearest dollar.