Final answer:
The effective annual yield of an account with a 4.2% nominal rate compounded monthly is approximately 4.2262%.
Step-by-step explanation:
To calculate the effective annual yield of an account with a nominal rate of 4.2% compounded monthly, we need to take into account the effect of compounding.
First, we need to convert the nominal rate to the monthly rate. Divide the nominal rate by 12 to get the monthly rate: 4.2% / 12 = 0.35%.
Next, convert the monthly rate to a decimal: 0.35% / 100 = 0.0035.
Now, calculate the effective annual yield using the formula:
Effective Annual Yield = (1 + Monthly Rate)^12 - 1
Effective Annual Yield = (1 + 0.0035)^12 - 1
Effective Annual Yield ≈ 0.042262, or 4.2262%