Clem deposited $5,000 in a savings account which pays 6.50/o

Question

interest, compounded quarterly. What was his balance at the
beginning of the third quarter?
a. $5,081.25
b. $5,163.82
c. $5,247.73
d. $5,325

Answer 1

To determine the balance at the beginning of the third quarter, we first need to determine the balance at the end of the second quarter.

Quarterly interest rate = 6.50%/4 = 1.625%
Number of quarters = 2

Balance at end of second quarter = $5,000 * (1 + 1.625%)^(2) = $5,163.82

To find the balance at the beginning of the third quarter, we need to undo one quarter of compounding:

Balance at beginning of third quarter = $5,163.82 / (1 + 1.625%) = $5,081.25

Therefore, the answer is (a) $5,081.25.