Find the annual percentage yield for an investment that earns 8% per year compounded monthly.

Question

anonymous · Answer

isn't it 8%?

anonymous · Answer

noo...

anonymous · Answer

can you show work then on how you got 8%….

anonymous · Answer

i thought the question is similar to asking "what color is the red car?"...

so the at the end of the year, you get 8% of what you invested.

anonymous · Answer

no wonder i suck at business...

anonymous · Answer

Yes, I thought that too, but obviously its in a math book and there should be a deeper meaning to the question then just that. WORK TO BE SHOWN, do you understand what I am saying?

anonymous · Answer

is it actually comparing simple interest to compounding interest?

anonymous · Answer

if I knew I wouldn't be asking, I copied the question out of the book...

ganeshie8 · Answer

Okay.

given rate 8% is the rate for a year. <=== interest gets compounded YEARLY.

ganeshie8 · Answer

they are asking to find to what value interest goes, if we compound every month. instead of compounding only once in the year end

anonymous · Answer

okay

ganeshie8 · Answer

use this formula :

APY  = $(1 + \frac{.08}{12})^{12} - 1$

ganeshie8 · Answer

=.083
= 8.3 %

ganeshie8 · Answer

so, 8 % annual rate becomes 8.3 % if you compound monthly....

ganeshie8 · Answer

which means, you would get 8.3% return on ur investment in the year end !!

ganeshie8 · Answer

@Lanik  does it help ?

anonymous · Answer

yes thank you

ganeshie8 · Answer

glad to hear :)