1. Imagine a local bank representative is assisting you with establishing an account. The account you two are discussing has an APR of 6.5%. Determine the APY with quarterly compounding and with monthly compounding. How does changing the compounding period affect the annual yield?
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OpenStudy (anonymous):
quarterly =1/4
monthly =12
OpenStudy (anonymous):
A=P(1+r/n)^(n*t)
OpenStudy (dumbcow):
use that formula above
assume we are depositing 1 for 1 year
P=1
t=1
r=.065
n=4 or 12
find A in both cases
APY = (A-1)/1 * 100%
OpenStudy (anonymous):
does A=3.08, how do you find y
OpenStudy (dumbcow):
i think y or yield is A as we've defined it
A should be really close to 1
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OpenStudy (anonymous):
I use the formula A=1(1+.065/4) (4*1)
OpenStudy (dumbcow):
oh not times 4 , raised to the 4th power
OpenStudy (dumbcow):
^ means exponent
OpenStudy (anonymous):
I got .0050252592 for A
OpenStudy (dumbcow):
how did you get that?
.065/4 =.01625
add 1 = 1.01625
raise to 4th power = 1.0666
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