Future Value of Investment with Quarterly Compounding

Maria is considering investing in a financial product that compounds interest at a nominal rate of 6% per annum. However, she has a choice between different compounding frequencies: annually, semi-annually, and quarterly. Maria wants to determine which compounding frequency will yield the highest future value for her investment over a 5-year period. For her investment, she plans to deposit $10,000.

To aid in her decision-making process, she calculates the future value (FV) of her investment using the formula:

$$ FV = P imes (1 + r/n)^{nt} $$

where:

• $P$ = principal amount (initial investment)
• $r$ = annual nominal interest rate
• $n$ = number of compounding periods per year
• $t$ = number of years

What is the future value of Maria’s investment if it is compounded quarterly?