Question

What is the effective yield after one year for an investment of $3,065 in to a CD if the interest rate is 1.75% compounded monthly? [Note: write answer as a percentage to two decimal places, but without the % sign]

Answer 1

1.76%

Step-by-step explanation:

The effective yield of interest rate r compounded n times per year is ...

y = (1 +r/n)^n -1

Your CD has a yield of ...

y = (1 +0.0175/12)^12 -1 ≈ 0.017641 ≈ 1.76%

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The percentage yield is independent of the amount invested, unless that amount is so small that a fraction of a cent in interest makes a difference in the calculated yield.