51.9k views
1 vote
What is the effective yield after one year for an investment of $3,065 in to a CD if the interest rate is 1.75% compounded monthly? [Note: write answer as a percentage to two decimal places, but without the % sign]

User Saranga B
by
9.0k points

1 Answer

4 votes

Answer:

1.76%

Step-by-step explanation:

The effective yield of interest rate r compounded n times per year is ...

y = (1 +r/n)^n -1

Your CD has a yield of ...

y = (1 +0.0175/12)^12 -1 ≈ 0.017641 ≈ 1.76%

_____

The percentage yield is independent of the amount invested, unless that amount is so small that a fraction of a cent in interest makes a difference in the calculated yield.

User Lindsay Show
by
7.5k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.