# Can someone explain the reasoning behind dividing the interest rate of 0.08% over 4 here? Like, what does it mean in real life if I were to multiply instead of dividing?

Hope this helps!

The equation is based on annual interest being 8% but there is 4 calculations within the year instead of 1 at the end.

Then for annually calculated we would have

From that point on, if it continued for 20 years you would have

Thus for our example:

It would totally mess up your calculations if you multiplied by 4 instead of divide.

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Dividing the interest rate of 0.08% over 4 is typically done when calculating compound interest, especially when interest is compounded quarterly. It means that you're dividing the annual interest rate (0.08%) by the number of compounding periods per year (4 in this case). This is because the interest is being applied more frequently than annually, so you need to adjust the rate accordingly to reflect the smaller compounding periods.

If you were to multiply instead of dividing, it would artificially inflate the interest rate, assuming that the interest is being compounded quarterly. This would lead to an incorrect calculation of the final amount of money accrued through interest over time.

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