Question

You deposit $2000 into an account that pays 6% compounded monthly. a. How much money will you have in the account after 1 year? $   b. What is the effective annual yield?   %

Answer 1

We have a deposit of $2000 into an account that pays 6% compounded monthly, after a year we will have:

$\begin{gathered} \text{account}_{\text{year}}=2000\cdot(1+\frac{6}{100})^{12} \\ \text{account}_{\text{year}}=4024.4 \end{gathered}$

The effective annual yield (EAY) will be:

$\text{EAY}=\frac{account_{year}}{2000}-1=\frac{4024.14}{2000}-1=1.0122$

The EAY is 101.22%