Final answer:
To calculate the effective annual yield for a savings account with 8% interest compounded monthly, we need to use the formula for compound interest.
Step-by-step explanation:
To calculate the effective annual yield for a savings account with 8% interest compounded monthly, we need to use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
- A is the future value of the investment
- P is the principal amount (initial deposit)
- r is the annual interest rate (as a decimal)
- n is the number of times interest is compounded per year
- t is the number of years
Plugging in the values, we have:
A = P(1 + r/n)^(nt) = 1(1 + 0.08/12)^(12*1) = 1(1.0066667)^12 ≈ 1.0833
Multiplying by 100 to convert to a percentage, the effective annual yield is approximately 8.33%