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
Ok matt.....
I first answered this question for you here
http://www.jiskha.com/display.cgi?id=1452909381
Apparently you didn't like it, so you changed the rates to 5% and 7%
Damon answered the question for you after you changed it to 5% in the same way I did.
http://www.jiskha.com/display.cgi?id=1452962487
.. and again you didn't like it.
How does your text define APY
I thought it went Annual Percentage Yield, which to me means the equivalent annual rate of interest equal to whichever rate is given.
The fact that there are $7000 and we have 18 months has nothing to do with it
In both the US and Canada, (I am in Canada) it means the same thing
find the annual rate compounded annually which is equivalent to 7% compounded monthly
if that rate is j
1+j = (1 + .07/12)^12
1+j = 1.0058333...^12
1+y = 1.07229..
j = .07229..
so the rate is 7.229%
now take it or leave it
To find the APY (Annual Percentage Yield), we will use the formula:
APY = (1 + (APR / n))^n - 1
where APR is the annual percentage rate and n is the number of compounding periods in a year.
In this case, the APR is 7% and the CD compounds monthly, so n = 12.
APY = (1 + (0.07 / 12))^12 - 1
Now, let's calculate it step by step.
Step 1: Calculate the monthly interest rate by dividing the APR by the number of compounding periods in a year:
Monthly interest rate = 0.07 / 12 = 0.00583333
Step 2: Add 1 to the monthly interest rate:
1 + 0.005833333 = 1.005833333
Step 3: Raise this result to the power of the number of compounding periods in a year:
(1.005833333)^12 = 1.07177296
Step 4: Subtract 1 from the result:
1.07177296 - 1 = 0.07177296
Finally, to convert it to a percentage, multiply by 100:
0.07177296 * 100 = 7.18
Therefore, the APY is 7.18%.
Remember to round the answer to two decimal places, as requested.