Question

You open a two-year CD at 3.88% compounded monthly. What is the Annual Percentage Yield of this account (use the APY formula)?

Answer 1

To find the APY (Annual Percentage Yield) of a two-year CD at 3.88% compounded monthly, use the APY formula: APY = (1 + r/n)^n - 1.

Step-by-step explanation:

To find the APY (Annual Percentage Yield) of a two-year CD at 3.88% compounded monthly, we can use the formula:

APY = (1 + r/n)^n - 1

Where:

• r is the annual interest rate (as a decimal), which is 0.0388 in this case.
• n is the number of times the interest is compounded per year, which is 12 since it is compounded monthly.

Substituting the values into the formula, we get:

APY = (1 + 0.0388/12)^12 - 1

Solving this equation, the APY of the account is approximately 3.97%.