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Answer: €697,455.
The correct answer is **C** because it accurately accounts for quarterly compounding. The calculation involves: 1. **First Year**: The quarterly compounded rate for 3% is calculated as: \[ 90,000 \times \left(1 + \frac{0.03}{4}\right)^4 = 90,000 \times 1.03034 = 92,730.60 \] 2. **Second Year**: The quarterly compounded rate for 5% is applied to the new principal: \[ 92,730.60 \times \left(1 + \frac{0.05}{4}\right)^4 = 92,730.60 \times 1.05095 = 97,455.20 \] Thus, the account value at the end of the second year is closest to **€697,455**. **Why not A or B?** - **A** is incorrect because it assumes simple interest without compounding: 90,000 × (1 + 0.03 + 0.05) = 97,200. - **B** is incorrect because it uses annual compounding instead of quarterly: 90,000 × (1.03) × (1.05) = 97,335.
Author: LeetQuiz Editorial Team
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A bank offers a savings account with a stated annual interest rate of 3% for the first year and 5% for the second year. If the returns are compounded quarterly and an initial deposit of €90,000 is made at the start of the first year, the account's value at the end of the second year is closest to:
A
€697,200.
B
€697,335.
C
€697,455.
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