Question

Christina Stratton invested $8,000 in a certificate of deposit for 4 years. The certificate earns interest at an annual rate of 6.00 percent compounded quarterly. The amount per $1.00 is 1.061831. What is the effective annual yield ? Show work.

Answer 1

The effective annual yield for a certificate of deposit with a 6% annual interest rate compounded quarterly is approximately 6.14%.

Step-by-step explanation:

To find the effective annual yield, we need to use the formula:

Effective Annual Yield = (1 + (interest rate / number of compounding periods))^number of compounding periods - 1

In this case, the interest rate is 6%, which is equivalent to 0.06. The number of compounding periods is 4 per year. Plugging these values into the formula, we get:

Effective Annual Yield = (1 + (0.06 / 4))^4 - 1

Calculating this, we find that the effective annual yield is approximately 6.14%.