00:01
The first step into this problem is to convert this 11 % compounded quarterly into an effective annual interest rate.
00:08
We do it with the following formula of 1 plus the interest rate, which is 0 .11, remember, we never write it as percentage.
00:17
We write it as decimals when putting it into formulas, divided by n.
00:22
N is the number of compounding periods, so this is 4 because there are 4 quarters in a year, raised to n again and then minus one.
00:34
And this formula gives us that the effective interest rate, so i .e., is equal to 0 .1146, which is the same as 11 .46%.
00:47
This is the effective annual interest rate.
00:51
Now that we have the effective interest rate, we can find out how much money is going to be at the end of the 10 years, because they are making monthly payments of $3 ,700 of this interest rate for 10 years.
01:09
So we need to do the formula of first.
01:12
Well, of course, we multiply the 3 ,700 times...