**Comparing Compound Interest.**

The Problem |

a)
annually and b)quarterly. |

Recall the formula for compound interest is where,

P = initial deposit t = time in years r = rate of interest as a decimal n = number of compounding periods in one year A = the amount in the account after t years |

From the given information, P = 1000, t = 65 - 20 = 45, and r = .12.

a). Compounded annually means n = 1 (one compounding period in one year). So = $163,987.60.

b). Compounded quarterly means that n = 4 (4 compounding periods in one year). So = $204,503.36.

Obviously, the quarterly compounding will yield a significantly greater amount of money.

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