If you deposit money in a savings account with an interest rate (APR) of 5% and the account compounds quarterly, which is your annual percentage yield (APY)? Convert your answer to a percent and round it to two decimal places.

Answer 1

P = Po(1+r)^n.
We can use any value for the Initial
deposit, but the for the time should be
for one year.

Po = $1.00.
r = (5%/4)/100% = 0.0125 = Quarterly %
rate expressed as a decimal.

n = 4comp./yr * 1yr = 4 Compounding periods.

P = (1.00(1.0125)^4 = $1.0509.

APY = ((P-Po)/Po) * !00%.
APY=((1.0509-1.00)/1.00) * 100%=5.09%.