SOLUTION: A three-year CD can be purchased at a bank for $3000 with an APR of 5.53% that is compounded quarterly. So that you can compare this opportunity to a CD available at some other ba

Algebra ->  Finance -> SOLUTION: A three-year CD can be purchased at a bank for $3000 with an APR of 5.53% that is compounded quarterly. So that you can compare this opportunity to a CD available at some other ba      Log On


   

Question 1179718: A three-year CD can be purchased at a bank for $3000 with an APR of 5.53% that is compounded quarterly. So that you can compare this opportunity to a CD available at some other bank, calculate the APY. (Round your answer to the nearest hundredth of a percent.)
Answer by CPhill(1959) About Me  (Show Source):
You can put this solution on YOUR website!
Here's how to calculate the Annual Percentage Yield (APY) for the CD:
**Understanding APR and APY**
* **APR (Annual Percentage Rate):** The stated annual interest rate.
* **APY (Annual Percentage Yield):** The actual annual rate of return, taking into account the effect of compounding.
**Formula**
The formula to calculate APY is:
APY = (1 + (APR / n))^n - 1
Where:
* APR is the annual percentage rate (as a decimal).
* n is the number of compounding periods per year.
**Calculation**
1. **Convert APR to decimal:** 5.53% = 0.0553
2. **Plug in the values:**
* APY = (1 + (0.0553 / 4))^4 - 1
* APY = (1 + 0.013825)^4 - 1
* APY = (1.013825)^4 - 1
* APY ≈ 1.0565 - 1
* APY ≈ 0.0565
3. **Convert to percentage:** 0.0565 * 100% = 5.65%
**Answer**
The APY for the CD is 5.65%.