Quarterly compounding means that the value on which we calculate the next quarterly interest resets every 4 months.A.TrueB.False

Break Down the Problem

1. Identify the concept of quarterly compounding interest.
2. Determine how interest is calculated and applied in a quarterly compounding scenario.

Relevant Concepts

Quarterly compounding means that the interest is calculated and added to the principal amount four times a year (every three months). The term "quarter" refers to these three-month intervals, so the principal resets at the end of every quarter.

Analysis and Detail

• In quarterly compounding, after the end of each quarter, the interest earned during that period is added to the principal.
• This new total then becomes the basis for calculating the next quarter’s interest.
• Therefore, the statement implies that the value resets every four months, which is incorrectly phrased because it should refer to every three months (or quarterly).

Verify and Summarize

Since interest is compounded four times a year, the concept does imply resetting the principal to the amount inclusive of the interest earned, but it is actually done every three months (not four months).

Final Answer

The correct answer is B. False. The term "quarterly" refers to three-month intervals; therefore, the reset happens every three months, not every four months.