Question

Jamie would like to compare one savings account to another savings account. So, he compares the amount of interest he will earn in one year from each account. This is the _____.

variable interest
minimum balance
interest thresholds
annual percentage yield (APY)

Answer 1

The answer is: annual percentage yield

Annual percentage yield refers to the total financial gain that a person get from one type of investment within one accounting period. To count annual percentage yield, jamie should not only consider the number of interest rate, but also the compounding effect that he might get if he choose to reinvest all of the earning into the account and let it produce higher financial gain.

Answer 2

If Jamie would like to compare one savings account to another savings account, and that he compares the amount of the interest he will earn in one year in each account, it is likely that he is demonstrating the annual percentage yield. This is where the annual rate return exist in which the effect of copound interest is being taken into account.