Sorry...
Assume an 18 month CD purchased for $7000 pays an APR of 7% compounded monthly. What is the APY?
APY = ___%
Round the answer to two decimal places
Damon solved it for 5%. So, change to 7% and follow his steps.
To calculate the APY (Annual Percentage Yield), we need to use the formula:
APY = (1 + r/n)^n - 1
Where:
- r is the nominal interest rate (APR) in decimal form
- n is the number of times the interest is compounded per year
In this case, the APR is 7% (7/100 = 0.07), and the interest is compounded monthly, so n = 12.
Let's plug the values into the formula and solve for APY:
APY = (1 + 0.07/12)^12 - 1
Using a calculator, the calculations would be as follows:
Step 1: Calculate (1 + 0.07/12)
(1 + 0.07/12) = 1.00583
Step 2: Raise (1.00583) to the power of 12
(1.00583)^12 = 1.07149
Step 3: Subtract 1 from the result
1.07149 - 1 = 0.07149
Step 4: Convert the decimal result to a percentage and round to two decimal places
0.07149 * 100 = 7.149%
Therefore, the APY for the 18-month CD is 7.15%.