Final answer:
The APY for a savings account with a 4.4% APR compounded daily is calculated using the formula APY = (1 + r/n)^n - 1. The result gives a more accurate representation of the account's earnings over a year compared to the APR alone.
Step-by-step explanation:
The question asks for the calculation of the annual percentage yield (APY) for a savings account that has a 4.4% annual percentage rate (APR) with interest compounded daily. To calculate the APY, we use the formula:
APY = (1 + r/n)n – 1
where:
- r represents the annual interest rate (decimal form)
- n represents the number of times the interest is compounded per year
Since the APR is 4.4%, we convert it to a decimal by dividing by 100 (r = 0.044). Ignoring leap years, we have 365 days in a year, so the interest is compounded 365 times (n = 365).
Plugging these values into the formula, we get:
APY = (1 + 0.044/365)365 – 1
Performing the calculation, we found the APY. Using this calculation, Anakin can estimate the amount of interest that the $2,000.00 deposit would yield over the course of a year, giving a more accurate picture of earnings compared to simply looking at the APR.
When considering the APY for savings accounts, it is noted that savings account interest rates are generally lower than rates for Certificates of Deposit (CDs), as investors receive a higher rate for CDs due to the lack of liquidity.