MHB Converting to a tri-monthly interest rate

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To convert an APR of 3% to a tri-monthly interest rate, the formula used is (0.03 + 1)^(4/12) - 1. This calculation is based on the future value formula for investments, where A represents the future value, P is the principal amount, r is the annual nominal interest rate, n is the number of compounding periods per year, and t is the time in years. In this scenario, r is set to 0.03 and n is 4, reflecting the quarterly compounding. The method ensures accurate conversion of the annual rate to a tri-monthly basis. Understanding this calculation is essential for effective financial planning and investment strategies.
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If the APR is 3%, and I want to find the tri-monthly interest rate, is the correct way to find it:

(0.03+1)^(4/12)-1
?
 
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Taken from Wikipedia:

The formula for calculating the future value of an investment having an annual nominal interest rate is:

$\displaystyle A=P\left(1+\frac{r}{n} \right)^{nt}$

where:
  • A = future value
  • P = principal amount (initial investment)
  • r = annual nominal interest rate (as a decimal, not in percentage)
  • n = number of times the interest is compounded per year
  • t = number of years

In your case r = 0.03 and n = 4.
 

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