Bank One offered a 19​-year certificate of deposit​ (CD) at ​4.59% interest compounded quarterly. On the same day on the​ Internet, First Bank offered a 19​-year CD at ​4.58% compounded monthly. Find the APY for each CD. Which bank paid a higher​ APY?

Answer 1

To find the APY (annual percentage yield) for each CD, we use the formula:

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

where r is the annual interest rate, n is the number of times the interest is compounded per year.

For Bank One, r = 4.59% and n = 4 (compounded quarterly), so:

APY = (1 + 0.0459/4)^4 - 1
APY = 4.67%

For First Bank, r = 4.58% and n = 12 (compounded monthly), so:

APY = (1 + 0.0458/12)^12 - 1
APY = 4.61%

Therefore, Bank One paid a higher APY (4.67%) than First Bank (4.61%).