Question

Suppose that $5,000 is invested in a 6-month CD with an APY of 1.6%. What is the corresponding APR?

A. 0.8%
B. 1.2%
C. 1.6%
D. 2.0%

Answer 1

The corresponding APR can be found using the formula: APR = (1 + APY/n)^n - 1, where APY is the Annual Percentage Yield and n is the number of compounding periods in a year. Substituting the given values, the corresponding APR is 1.6064%, which is closest to 1.6%.

Step-by-step explanation:

The corresponding APR (Annual Percentage Rate) can be found by using the formula:

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

Where APY is the Annual Percentage Yield and n is the number of compounding periods in a year. In this case, the CD has a 6-month term, so n = 2.

Substituting the values given:

APR = (1 + 0.016/2)^2 - 1

APR = (1 + 0.008)^2 - 1

APR = (1.008)^2 - 1

APR = 1.016064 - 1

APR = 0.016064

So, the corresponding APR is 1.6064%, which is closest to 1.6%.