Final answer:
The effective annual yield for an account with 7% interest compounded monthly is calculated using the formula for effective annual rate (EAR), and the result is approximately 7.23%. Therefore, the closest answer option is B) 7.25.
Step-by-step explanation:
The question asks for the effective annual yield for an account that pays 7% interest compounded monthly. To find this, we use the formula for effective annual rate (EAR), which is (1 + r/n)n−1, where ‘r’ is the annual interest rate (expressed as a decimal), and 'n' is the number of times the interest is compounded per year.
In our case, with an annual interest rate of 7% (or 0.07 as a decimal) compounded monthly, 'n' is 12. So the effective annual rate is (1 + 0.07/12)12−1. Calculating this gives us approximately 1.0723 or 7.23%.
Therefore, the correct answer is B) 7.25, which is the closest option to the calculated effective annual yield.