Suppose a savings and loan pays a nominal rate of
3.9%
on savings deposits. Find the effective annual yield if interest is compounded quarterly.
Effective annual yield (in %):
= (1.039)^4 - 1
= 1.16536 - 1
= .1654 (Rounded Off)
= 16.54%
Effective Annual Rate of Interest:
Formula: i = (1 + r/n)^n - 1
where r = nominal rate of interest
n = no.of periods compunding
= (1 + .039/4)^4 - 1
= ( 1.00975)^4 - 1
= 0.03957
= 3.957%
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