Question

Knob Hill Savings Bank offers a one-year CD at 3.88% interest compounded

daily.
What is the APY for this account? Round to the nearest hundredth of a
percent.

Answer 1

3.95%

Explanation:

The computation of the APY is shown below:

As we know that

A = P(1 + rate)^n

where,

A = full and Final amount (Principal + Interest )

r = rate of interest

n = time

Now

Let us assume that P = $100.

Now placing the values,

A = $100 × (1 + (3.88% ÷ 365)^365

= $100 × (1 + 0.000106301 )^365

= $100 × (1.000106301 )^365

= $100 × 1.039560407

= $103.9560407

Now the annual percentage yield is

= Amount - principal

= $103.9560407 - $100

= 3.95%