Bank One offered a 19-year certificate of deposit (CD) at 4.59% interest compounded quarterly. On the same day on the Internet, First Bank offered a 19-year CD at 4.58% compounded monthly. Find the APY for each CD. Which bank paid a higher APY?
To find the APY (annual percentage yield) for each CD, we use the formula:
APY = (1 + r/n)^n - 1
where r is the annual interest rate, n is the number of times the interest is compounded per year.
For Bank One, r = 4.59% and n = 4 (compounded quarterly), so:
APY = (1 + 0.0459/4)^4 - 1
APY = 4.67%
For First Bank, r = 4.58% and n = 12 (compounded monthly), so:
APY = (1 + 0.0458/12)^12 - 1
APY = 4.61%
Therefore, Bank One paid a higher APY (4.67%) than First Bank (4.61%).