Question

What is the Effective Annual Yield in percent when the annual nominal interest rate is 7.042% compounded quarterly?EAY = ___%

Answer 1

Given that,

Annual nominal interest rate is 7.042% compounded quarterly

To find the effective annual yield.

Step-by-step explanation:

The formula for calculating effective annual yield (E) is,

`E=(1+(r)/(n))^n-1`

where r is the interest rate, n is the number of compounds per year.

Here, r=7.042 % and n=4

Substitute the values we get,

`E=(1+(7.042)/(100*4))^4-1`
`E=(1+0.017605)^4-1`
`E=1.07230154-1`
`E=0.07230154`
`E=0.07230154\approx7.23\%`

Effective annual yield is 7.23%