Question

An account that compounds interest monthly has an annual percentage yield of 5.9%.What is the annual interest rate for the account?

Answer 1

Answer: 6.06%

Explanation:

We must use the equation (1 + r/n)^n - 1.

r = percent rate

n = number of times compounded per year

While it is an annual percentage yield, it is still being compounded monthly.

So n = 12, not 1.

We also know 5.9% as a decimal should be 0.059.

The final equation should be (1 + 0.059/12)^12 - 1 = 0.0606

0.0606 x 100 = 6.06%

Hope this helped! :)

Answer 2

`\begin{gathered} \text{Annual interest rate (i) = (1+}(r)/(n))^n-1 \\ i=\text{ (1+}(0.059)/(1))^1-1 \\ i=\text{ }(1+0.059)-1 \\ i=\text{ 0.059} \\ I\text{ =i}*100 \\ I=\text{ 0.059}*100 \\ I\text{ = 5.9\%} \\ \text{The annual interest rate for the account is 5.9\%} \end{gathered}`