Final answer:
The APR and APY for a CD with annual compounding are equivalent since there is no additional compounding within the year; therefore, the APY for a CD with an APR of 1.8% compounded annually is also 1.8%.
Step-by-step explanation:
The question asks about the difference between the Annual Percentage Rate (APR) and the Annual Percentage Yield (APY) of a Certificate of Deposit (CD). The APR is the rate of interest that will be paid without considering the effect of compounding within the year, while the APY accounts for the frequency of compounding during the year, which results in a slightly higher yield due to earning interest on previously earned interest.
For calculating APY from APR, we use the formula:
APY = (1 + r/n)n - 1
Where 'r' is the APR expressed as a decimal, and 'n' is the number of times interest is compounded per year. In this case, 'n' would be 1 since the interest is compounded annually. With an APR of 1.8%, the APY calculation would be:
APY = (1 + 0.018/1)1 - 1
APY = 1.018 - 1
APY = 0.018
APY = 1.8%
In this particular case, the APR and APY are the same since there is no additional compounding within a year. Therefore, the correct answer is A. 1.8%.