Question

If you invest $10,427.00 into an account earning an annual nominal interest rate of 4.502%, how much will you have in your account after 1l years if the interest is compounded quarterly? If the interest is compounded continuously? Help answer D What is the Effective Annual Yield in percent when the annual nominal interest rate is 4.502% compounded quarterly? EAY= ___%

Answer 1

Step 1

State the formula for the Effective Annual Yield(EAY)

$i=(1+\frac{r}{n})^n-1$

where;

$\begin{gathered} r=4.502\text{\%} \\ n=4 \\ \end{gathered}$

Step 2

Find the EAY

$\begin{gathered} i=(1+\frac{4.502}{4})^4-1 \\ \end{gathered}$$\begin{gathered} i=(\frac{4251}{2000})^4-1 \\ i=19.41006732 \\ i\approx19.410\text{\% to 3 decimal places} \end{gathered}$

Hence, the EAY is approximately = 19.410% to 3 decimal places