Question

suppose a savings and loan pays a nominal rate of 3.4% on savings deposits. find the effective annual yield if interest is compounded annually. (round to the nearest thousandth as needed)

Answer 1

1) Gathering the Data

Savings and Loan

The nominal rate of 3.4%

Compounded Annually

2) So let's use this formula to find the effective annual rate

Given:

i = nominal rate

3.4%=0.034

$\begin{gathered} (1+\frac{i}{n})^n-1 \\ (1+\frac{0.034}{1})-1 \\ (1.034)\text{ -1} \\ 0.034 \end{gathered}$

3) In this case the nominal and the effective are the same since the period is already adjusted.