Solve the problem.
-Determine the effective annual yield for $1 invested for 1 year at 4.5% compounded monthly.
A) 2.27%
B) 0.38%
C) 4.59%
D) -5.41%

Question

Quizplus · Accepted Answer

The effective annual yield (EAY) can be calculated using the formula for compound interest: $EAY = (1 + \frac{r}{n})^n - 1$, where $r$ is the annual interest rate (expressed as a decimal) and $n$ is the number of compounding periods per year. For a 4.5% interest rate compounded monthly, $r = 0.045$ and $n = 12$. Plugging these values into the formula gives $EAY = (1 + \frac{0.045}{12})^{12} - 1 \approx 0.0459$ or 4.59%.

Solve the Problem. -Determine the Effective Annual Yield for $1 Invested for 1