Question

Bank One offered an 18-yeat certificale of deposit (CD) at 4.75% interest compounded quarterly. Cn the same day on the Internet, First Bank offered an 18-year CO at 474% compounded monthly. Find the APY for each CD. Which bank paid a higher APY?

Answer 1

To find the APY for each CD, we can use the formula: APY = (1 + r/n)^n - 1. For Bank One's CD, the APY is approximately 4.8359% and for First Bank's CD, the APY is approximately 4.8124%. Bank One's CD has a higher APY.

Step-by-step explanation:

To find the APY for each CD, we can use the formula:

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

where:

• r is the interest rate
• n is the number of times the interest is compounded per year

For Bank One's CD, the interest rate is 4.75% and it is compounded quarterly. So, r = 4.75 / 100 = 0.0475 and n = 4.

Using the formula, we have:

APY = (1 + 0.0475/4)4 - 1 ≈ 0.048359

So, Bank One's CD has an APY of approximately 0.048359 or 4.8359%.

For First Bank's CD, the interest rate is 4.74% and it is compounded monthly. So, r = 4.74 / 100 = 0.0474 and n = 12.

Using the formula, we have:

APY = (1 + 0.0474/12)12 - 1 ≈ 0.048124

So, First Bank's CD has an APY of approximately 0.048124 or 4.8124%.

Comparing the APYs, we can see that Bank One's CD has a higher APY of 4.8359% compared to First Bank's CD which has an APY of 4.8124%.