Suppose you invest $1,000 today, compounded quarterly, with the annual interest rate of 5.00%. What is your investment worth in one year?
A) $1,025.00
B) $1,500.95
C) $1,025.27
D) $1,050.95
Answer: D
Explanation: D) With PV = $1,000, APR = 5.00%, C/Y = 4, periodic interest rate = r = 0.0125, we begin by taking (1 + periodic rate) to the power of C/Y. Doing this gives: (1.0125)4 = 1.050945. Multiplying this number by PV gives $1,050.95.
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