Question

passbook savings account has a rate of 7%. Find the effective annual yield, rounded to the nearest tenth of a percent, if the interest is compounded 1000 times per year.​

Answer 1

7.25%

Explanation:

n=1000

Effective yield, y is given by

`y=(1+\frac {r}{n})^(n)-1` where r is percentage rate expressed in decimal points, n is the duration

Substituting 1000 for n and 0.07 for r we obtain

`y=(1+\frac {0.07}{1000})^(1000)-1`

y=0.0725055537

Therefore, yield is
`0.0725055537*100=7.25055537%\approx 7.25%`