Question

Consider the bank advertisement in table 1.0 that appeared in a local newspaper: "Open a Liberty Bank Certificate of Deposit (CD) and get a guaranteed rate of return on as little as $500. It's a smart way to manage your money for months." In this advertisement, no mention is made of specific interest compounding frequencies. Find the compounding period for each CD.

Minimum Type of Certificate 1-Year Certificate 2-Year Certificate 3-Year Certificate 4-Year Certificate 5. to 10-Year Certificates Interest Rate (APR) 2.23% 3.06% 3.35% 3.45% Annual Percentage Yeld (APY) 2.25% 3.10% 3.40% 3.50% Required to open $500 $500 $500 $500 4.41% 4.50% $500

Answer 1

The compounding interval for each can be found as per the table below (the formula is also given).

Interest Rate (APR) in %	Annual Percentage Yield (APY) in %	Term	Compounding interval in years	Value of x in years	Value of x in months	Formula for APY in %
2.23	2.25	1	x1	1	12	2.23
3.06	3.1	2	x2	1.2	14.4	3.10
3.35	3.4	3	x3	2.15	25.8	3.40
3.45	3.5	4	x4	3.1	37.2	3.50
4.41	4.5	5	x5	4	48	4.50
APY =(( (1+APR*x)^(t*1/x ) -1) / t)