Question

An investment pays 10% interest compounded monthly. What percent, as a decimal, is the effective annual yield? Enter your answer as a decimal rounded to four decimal places.

Answer 1

$~~~~~~ \textit{Annual Percent Yield Formula} \\\\ ~~~~~~~~~~~~ APY=\left(1+\frac{r}{n}\right)^{n}-1 ~\hfill \begin{cases} r=rate\to 10\%\to \frac{10}{100}\dotfill &0.1\\ n= \begin{array}{llll} \textit{times it compounds per year}\\ \textit{monthly, thus twelve} \end{array}\dotfill &12 \end{cases} \\\\\\ APY=\left(1+\frac{0.1}{12}\right)^{12}-1\implies APY=\left( \frac{121}{120} \right)^{12}-1\implies APY\approx 0.1047$