Assume an 18-month CD purchased for $7000 pays an APR of 5% compounded monthly. What is the APY?
Did you look at my previous answer to this question??
All you did is change the 3% to 5%.
What changes do you think you have to make to my solution?
i know but it was wrong so it change %
To calculate the Annual Percentage Yield (APY) for a CD (Certificate of Deposit) with monthly compounding, you can use the following formula:
APY = (1 + r/n)^n - 1
Where:
r = Annual Percentage Rate (APR)
n = Number of compounding periods per year
In this case, the APR is 5% and the compounding is monthly, so the formula becomes:
APY = (1 + 0.05/12)^12 - 1
Now let's calculate it step by step:
1. Convert the APR to a decimal by dividing it by 100: 0.05 / 12 = 0.0041667
2. Add 1 to the decimal: 1 + 0.0041667 = 1.0041667
3. Raise this value to the power of the number of compounding periods per year: (1.0041667)^12 ≈ 1.051161897
4. Subtract 1 from the result: 1.051161897 - 1 ≈ 0.051161897
5. Finally, convert the APY back to a percentage by multiplying it by 100: 0.051161897 * 100 ≈ 5.12%
Therefore, the APY for the 18-month CD with a 5% APR compounded monthly is approximately 5.12%.