Assume an 18-month CD purchased for $7000 pays an APR of 7% compounded monthly. What is the APY?

(Fill in the blank below and round your answer to 2 decimal places.)

APY = %

To calculate the APY (Annual Percentage Yield), we need to convert the APR (Annual Percentage Rate) to an annualized rate that accounts for compounding.

The formula for APY is:

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

Where:
r is the annual interest rate (in decimal form),
n is the number of compounding periods per year.

In this case, the APR is 7% and it is compounded monthly, so the annual interest rate (r) is 7% or 0.07, and the number of compounding periods (n) is 12 (monthly).

To calculate the APY:

APY = (1 + 0.07/12)^12 - 1
= (1.00583)^12 - 1
≈ 0.0716

Therefore, the APY is approximately 7.16%.

P = Po(1+r)^n.

r = (7%/12)/100% = 0.005833 = Monthly % rate expressed as a decimal.

n = 12Comp/yr. * 1.5yrs. = 18 Compounding periods.

P = 7000(1.005833)^18 = $7737.90.

APY = ((P-Po)/Po)*100 =