Asked by Steven Enrique on Apr 26, 2024
Verified
An investment is made in an account that pays 9.25%, compounded daily. What is the effective yield for this investment? Round your answer to two decimal places.
A) 9.69%
B) 9.46%
C) 9.65%
D) 9.58%
E) 9.25%
Compounded Daily
A method of calculating interest where the interest earned is added to the principal daily, resulting in earning interest on interest.
Effective Yield
A measure of the return on an investment, considering the compound interest rate.
Decimal Places
The positions to the right of the decimal point in a decimal number, indicating fractions of ten.
- Execute computations concerning effective yield to assess financial investments.
Verified Answer
GB
gizeal bahatiApr 26, 2024
Final Answer :
A
Explanation :
The effective yield, also known as the effective annual rate (EAR), can be calculated using the formula: EAR=(1+rn)n−1EAR = (1 + \frac{r}{n})^n - 1EAR=(1+nr)n−1 , where rrr is the annual interest rate (expressed as a decimal), and nnn is the number of compounding periods per year. For daily compounding, n=365n = 365n=365 . Plugging in the given values: EAR=(1+0.0925365)365−1EAR = (1 + \frac{0.0925}{365})^{365} - 1EAR=(1+3650.0925)365−1 , which approximately equals 0.0969 or 9.69% when rounded to two decimal places.
Learning Objectives
- Execute computations concerning effective yield to assess financial investments.