Question

A passbook savings account has a rate of 5%. Find the effective annual yield if the interest is compounded quarterly.

Answer 1

Effective annual yield = 0.05094534 or 5.094%

Explanation:

Given:

Rate of interest (r) = 5% = 0.05

Interest = compounded quarterly

Find:

Effective annual yield = Y

Computation:

`Y=(1+(r)/(n) )^n-1\\\\Y=(1+(0.05)/(4) )^4-1\\\\Y=(1+0.0125 )^4-1\\\\Y=(1.0125 )^4-1\\\\ Y=1.05094534-1\\\\Y=0.05094534\\\\\\`

Effective annual yield = 0.05094534 or 5.094%