Question

The APR of Vinny's savings account is 3.5%, but interest is compounded only once a year. What is the APY of Vinny's savings account?

Answer 1

We have been given that the APR of Vinny's savings account is 3.5%, but interest is compounded only once a year. Wee are asked to find the Annual percentage yield of Vinny's savings account.

We will APY formula to solve our given problem.

$APY=(1+\frac{r}{n})^n-1$, where,

r = Annual percentage rate in decimal form,

n = Number of times interest is compounded per year.

$3.5\%=\frac{3.5}{100}=0.035$

Since interest is compounded per year, so $n=1$.

$APY=(1+\frac{0.035}{1})^1-1$

$APY=(1+0.035)-1$

$APY=(1.035)-1$

$APY=0.035$

Upon converting 0.035 to percent, we will get $3.5%$%.

Therefore, APY of Vinny's savings account is 3.5%.

Answer 2

Annual Percentage Yield of Vinny's savings account is equal to 3.5% same as the Annual Percentage Rate since the interest rate is compounded only once a year. Compounding interest once a year is equal to interest rate per year.