Question

A bank features a savings account that has an annual percentage rate of 3.5% with interest compounded quarterly. Vanessa deposits $6,500 into the account. What is the annual percent yield (APY) for the savings account? Round to the nearest hundredth of a percent?

Answer 1

Answer:

APY = 0.04 or 4%

Step-by-step explanation:

Given the annual percentage rate of 3.5% that is compounded quarterly, and a principal of $6,500:

We can use the following formula to solve for the annual percentage yield (APY):

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

where r = interest rate = 3.5% or 0.035

          n = number of compounding periods per year = 4

We can plug in the values into the equation:

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

$APY = (1 + \frac{.035}{4})^4 - 1$

$APY = (1 + 0.00875)^4 - 1$

$APY = (1.00875)^4 - 1$

APY = 1.03546 - 1  

APY = 0.04 or 4%