Question

A passbook savings account has a rate of 5%. Find the effective annual yield if the interest is compounded quarterly.

Answer 1

Answer:

Effective annual yield = 0.05094534 or 5.094%

Step-by-step explanation:

Given:

Rate of interest (r) = 5% = 0.05

Interest = compounded quarterly

Find:

Effective annual yield = Y

Computation:

$Y=(1+\frac{r}{n} )^n-1\\\\Y=(1+\frac{0.05}{4} )^4-1\\\\Y=(1+0.0125 )^4-1\\\\Y=(1.0125 )^4-1\\\\ Y=1.05094534-1\\\\Y=0.05094534$

Effective annual yield = 0.05094534 or 5.094%