Question

Ralph Kramer ingested $11,000 in a certificate of deposit for 1 year. The certificate earns interest at an annual rate of 5.75 percent compounded daily. The amount per $1.00 is 1.059180. What is the effective annual yield? Show work

Answer 1

5.91%

Explanation:

We are given an investment deposited fro 1 year compounded daily at an annual interest rate of 5.75%.

Compounding period per year, n: 365

The effective annual yield can be calculated by the following formula:

Effective Annual Yield =
`(1+(r)/(n))^(n)-1`

where n = 365

Interest rate, r= 5.75% = 0.0575

`=(1+(0.0575 )/(365))^(365)-1`

= 0.059

The annual effective yield is 5.91%