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    raeannprovidenc's Avatar
    raeannprovidenc Posts: 1, Reputation: 1
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    #1

    Apr 14, 2009, 11:55 AM
    Compounding
    I am having a hard time trying to figure out how to begin analyzing the compounding quarterly can anyone suggest anything?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Apr 14, 2009, 09:07 PM

    Are you referring to interest, and what do you mean by "analyzing" it? What exactly are you trying to do here?
    aas's Avatar
    aas Posts: 13, Reputation: 1
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    #3

    Apr 15, 2009, 09:47 AM

    well, basically compounding quarterly is about compounding the total inflow or outflow for three months (a quarter) than calculate it with the related factors. I'll give u an example for compounding interest:
    Mr.A stores $100 monthly to his bank account and the bank annual interest rate is 8%, compounded quarterly.
    Since its quarterly compounded, then we have to calculate effective interest rate using the formula below:
    I effective =(1+(r/m)^m)-1; where r=nominal interest & m=number of compounding periods.
    in this example:
    r = 8% & m=4 (quarterly =3months --> 12/3=4)
    so the effective rate will be = 8.24% annually
    then the amount of interest expense received by mr.A in one year is = 8.24%*(12*100)= $99
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