# Compund Interest Quiz

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Please find our compound interest formulas below for the quiz questions. To understand compound interest fully please read our blog article on it!

**Annually compounded interest formula: **

**Half-yearly compounded interest formula:**

**Quarterly compounded interest formula:**

**Compounded interest formula with varying interest rates:**

Here, Principal sum = P, Interest = R% per annum, Time = n years

You have an investment proposition in front of you where you would invest 10000 Brittish pounds in a project and after 1 year you can sell the investment. You would earn 5% paid quarterly. How much would you have at the end of year 1?

### Answer & Explanation:

Answer: Option D

Explanation: Using the quarterly formula above you will come to 10509.45 i.e.10509.

If the above investment was paid annually how much less would you receive compared to quarterly compounding??

### Answer & Explanation:

Answer: Option C

Explanation: The answer is 9 as with annual interest you would receive 10500 and with quarterly it is 10509.

In the above investment proposition, what would you have earnt in interest if you held the investment for 2 years and you reinvested the interest as well annually? The interest rate stays the same.

### Answer & Explanation:

Answer: Option B

Explanation: 11025 as 1.05*1.05*100000=11025

In the above investment things have changed as the interest rate is expected to change in year 2. In year 1 you still earn the same 5% but in year 2 the interest is now 7%. What is the compounded interest you would earn now?

### Answer & Explanation:

Answer: Option D

Explanation: The compounded INTEREST you would earn is 1.05*1.07*10000=11235-10000=1235

In the above investment situation the investment provider is trying to trick you by giving you 2 options. Invest 10000 and receive 3% annually OR invest 10000 and receive 2% quarterly. Which one should you choose if the investment period is 2 years?

### Answer & Explanation:

Answer: Option D

Explanation: Believe it or not but 2% paid quarterly is a lot more valuable. Compounding 2% over 2 years each quarter (8 quarters in 2 years) equals to 4.07%!! The wonderful effect of compounded interest at work here folks!

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