Molly Hamilton deposited $70,000 at Bank of America at 12% interest compounded quarterly. What is the effective rate (APY)? (Please use the following provided Table.) (Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)
Answer : the effective rate (APY) =12.55%
Working notes for the above answer is as follow
APY =((1+r)^n – 1)*100%,
r= 12% / 4
= 3%
= 0.03 = Quarterly % rate expressed as a decimal.
n = 4 comp/yr * 1yr = 4 compounding periods.
We have given the information that interest compounded quarterly and we need to calculate the effective rate (APY)
So it is calculated asfollow.
APY = ((1.03)^4 – 1)*100%
= (1.125509-1)
0.1255
=12.55% => Annual Percentage Yield.
