Question

If the Wet Dog Surf Company borrows $12,000 at 3.50% and there are 12 compounding periods per year, calculate Wet Dog's Effective Annual Rate (APY) of interest. - B co E 2 Answer =

Answer 1

Principal = $12000

Rate = 3.50%

No. of compounding period per year = 12

Effective Annual Interest Rate = (1 + (Rate of Interest / No. of compounding period per year)) ^ (no. of compounding period per year) - 1

= (1 + (3.50% / 12)) ^ 12 - 1

= (1+(3.50/1200)) ^ 12 - 1

= (1+0.002917) ^ 12 - 1

=(1.002917)^12 - 1

= 1.035571 - 1

= 0.035571

= (0.035571 X 100) %

= 3.5571%

= 3.56%