SOLUTION: US banks advertises an APR of 2.25% compounded weekly. what would be the APY be rounded to the nearest hundred of a percent?

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Question 1027723: US banks advertises an APR of 2.25% compounded weekly. what would be the APY be rounded to the nearest hundred of a percent?
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
2.25% = .0225

.0225/52 = .0004326932077

add 1 to that to get 1.0004326932077

1.0004326932077^52 = 1.0227500571

subtract 1 from that and you get .0227500571 = 2.27500571%

the difference is roughly 2.25% versus 2.275%

you take the nominal annual interest rate and you divide it by the number of compounding periods per year.

you then add 1 to that and you raise it to the power of the number of compounding periods per year.

you then subtract 1 from that and you get the effective interest rate per year.

in this particular case, the number of compounding periods per year was 52 because there are 52 weeks in one year.

apr is the nominal interest rate per year.
apy is the effective interest rate per year.