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If you deposit money in a savings account with an interest rate (APR) of 5% and the account compounds quarterly, which is your annual percentage yield (APY)? Convert your answer to a percent and round it to two decimal places.

  • math -

    P = Po(1+r)^n.
    We can use any value for the Initial
    deposit, but the for the time should be
    for one year.

    Po = $1.00.
    r = (5%/4)/100% = 0.0125 = Quarterly %
    rate expressed as a decimal.

    n = 4comp./yr * 1yr = 4 Compounding periods.

    P = (1.00(1.0125)^4 = $1.0509.

    APY = ((P-Po)/Po) * !00%.
    APY=((1.0509-1.00)/1.00) * 100%=5.09%.

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