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## Gavin deposited money into his savings account that is compounded annually at an interest rate of 9%. Gavin thought the equivalent quarterly

Question

Gavin deposited money into his savings account that is compounded annually at an interest rate of 9%. Gavin thought the equivalent quarterly interest rate would be 2.25%. Is Gavin correct? If he is, explain why. If he is not correct, state what the equivalent quarterly interest rate is and show how you got your answer.

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Mathematics
3 years
2021-08-22T17:00:04+00:00
2021-08-22T17:00:04+00:00 1 Answers
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## Answers ( )

Answer:The equivalent rate is of 0.093 = 9.3% a year. Gavin is wrong, because he applied the wrong formula, its not just dividing the interest rate r by the number of compoundings n, it is

Step-by-step explanation:Equivalent interest rate:The equivalent interest rate for an amount compounded n times during a year is given by:

In which r is the interest rate and n is the number of compoundings during an year.

Compounded annually at an interest rate of 9%This means that

Compounded quarterly:This means that

Equivalent rate:The equivalent rate is of 0.093 = 9.3% a year. Gavin is wrong, because he applied the wrong formula, its not just dividing the interest rate r by the number of compoundings n, it is