Question

Sofia invests her money in an account paying 7% interest compounded semiannually. What is the effective annual yield on this account? Enter your response as a percentage rounded to two decimal places and omit the percentage sign

Answer 1

Answer:

7.12

Step-by-step explanation:

The formula for the effective annual yield is given as:

i = ( 1 + r/m)^m - 1

Where

i = Effective Annual yield

r = interest rate = 7% = 0.07

m= compounding frequency = semi annually = 2

i = ( 1 + 0.07/2)² - 1

i = (1 + 0.035)² - 1

= 1.035² - 1

= 1.071225 - 1

= 0.071225

Converting to percentage

0.071225 × 100

= 7.1225%

Approximately to 2 decimal places = 7.12

Therefore, the annual effective yield = 7.12