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- anonymous

1. Imagine a local bank representative is assisting you with establishing an account. The account you two are discussing has an APR of 6.5%. Determine the APY with quarterly compounding and with monthly compounding. How does changing the compounding period affect the annual yield?

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- anonymous

- chestercat

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- anonymous

quarterly =1/4
monthly =12

- anonymous

A=P(1+r/n)^(n*t)

- dumbcow

use that formula above
assume we are depositing 1 for 1 year
P=1
t=1
r=.065
n=4 or 12
find A in both cases
APY = (A-1)/1 * 100%

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- anonymous

does A=3.08, how do you find y

- dumbcow

i think y or yield is A as we've defined it
A should be really close to 1

- anonymous

I use the formula A=1(1+.065/4) (4*1)

- dumbcow

oh not times 4 , raised to the 4th power

- dumbcow

^ means exponent

- anonymous

I got .0050252592 for A

- dumbcow

how did you get that?
.065/4 =.01625
add 1 = 1.01625
raise to 4th power = 1.0666

- anonymous

so A =1.0666
APY=.0666

- dumbcow

times 100%

- anonymous

i did the answer didnt change

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