Question

Find the APY for a stated APR of 12% compounded monthly

Answer 1

@pphalke
Can you explain the meaning of APR and APY for me?

Answer 2

I know APY MEANS ANNUAL PERCENTAGE YIELD

Answer 3

and APR?

Answer 4

ANNUAL PERCENTAGE RATE

Answer 5

Very good!
Now can you tell me if the two terms the same or different.
If different, what is the difference?

Answer 6

I don't know I need help with the problem

Answer 7

ok!
This is what happens!

Answer 8

When we get a credit card, they always tell your
The APR is 21% (or any other number).

Answer 9

This gives the impression that if we owe them $100 for a whole year, we "only" pay $21 interest!
But....not true!

Answer 10

Why, because 21% is just a nominal value, without taking into account of the fact that the interest is compounded 12 times a year (at least for credit cards).

Answer 11

At you following so far?

Answer 12

yes

Answer 13

Good, I thought I might have been talking to a wall! lol

Answer 14

I am here

Answer 15

Now, can you calculate the real interest using APY and the compound interest formula if I owe the credit card company $100 for a year?
Future value = principal*(1+APR/12)^12

Answer 16

@pphalke hope you're still there, or even better, you're using your calculator.

Answer 17

is it (1+0.08/12)^12?

Answer 18

yes!

Answer 19

But multiplied by $100, which is the principal, or what I owe them.

Answer 20

oops, not 0.08 (that's 8%).
I'd like you to calculate 100*(1+0.21/12)^12, which is the APY for 21% APR.

Answer 21

its 12%

Answer 22

I was giving you an example. If you want to solve your problem (12%) first, that's ok too.

Answer 23

Actually, what you get is the 100$ + interest.
To get APY, you will subtract 100$ from what you calculate.
So
APY=100(1+APR/12)^12-100
if you prefer formulas.

Answer 24

Need to convert APR to a fraction, so divide by 100. The 12 is for 12 months. Multiplied together gives 1200 as the denominator.
APY=100(1+APR/1200)^12-100

Answer 25

Are you still working on it or are you stuck?

Answer 26

@pphalke are you still there?