Question

help please?
Part 1: Explain which companies would advertise APY over APR and describe how this would help them attract customers.

Part 2: Create a unique APR (state how often the rate is compounded) and calculate the corresponding APY. Use a comparison of the two rates to verify your answer to part 1.

Answer 1

your lacking information for the problem in your post

Answer 2

APR of $1, compounded is:\[(1+\frac rn)^n\]
APY is the rate it would have been if it had been stated at a compounding of 1 year:\[(1+k)\]where k is the APY
\[1+k=(1+\frac rn)^n\]
\[k=(1+\frac rn)^n-1\]

Answer 3

Yes it is a bit vague isn't it?
Would this be the answer to my question or a formula to plug my own numbers into?

Answer 4

this is a general formula to aid you along the way

let r be the rate that is compounded, let n be the number of times a year it gets assessed, and then k (or the APY) is just a function r and n as stated

Answer 5

since the APR and the APY give the same "values" at the end of the year, the strategy lies in how people relate the value of a rate to their investments

Answer 6

I am supposed to create my own scenaario here. But I can't come up with a rational one to really protray the relationship between apr and apy.

Answer 7

usually, a higher numerical value attracts more investors on a psychological level

Answer 8

think of a rate ...

think of how many times a year you want to assess that rate ...

Answer 9

okay so. 15.5% compounded monthly

Answer 10

then r = 15.5, n=12

and k = (1+.0155/12)^12 - 1

Answer 11

got my decie in the wrong spot :) 0.155/12 that is

Answer 12

.0129

Answer 13

APR = 15.5 %

APY = 16.6449 %

according to the workings of my patent pending formulas

Answer 14

Ah okay, this seems to make it more concrete. thank you :)

Answer 15

youre welcome; and just to fix a typo ... APY = 16.6499 %

these old eyes aint what they used ta be

Answer 16

Ahaha, I was checking that on my calculator and I noticed that too, no worries. It happens to the best of us!