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12 September, 22:52

Chan deposited money into his retirement account that is compounded annually at an interest rate of 7%. Chan thought the equivalent quarterly interest rate would be 2%. Is Chan 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. (8 pts)

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  1. 13 September, 01:25
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    No, equivalent quarterly rate will be approx 1.75%

    Step-by-step explanation:

    Given that Chan deposited money into his retirement account that is compounded annually at an interest rate of 7%.

    We know that there are 4 quarters in 1 year.

    So to find that equivalent quarterly we will divide given yearly rate by number of quarters.

    That means divide 7% by 4.

    which gives 1.75%.

    But that is different than Chan's though of 2% quarterly interest.

    Hence Chan is wrong.
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