Sally wishes to invest $4500 in a 2-year CD with an interest rate of 5.3% each year and compounded monthly. What is the annual percentage yield for Sally's CD (rounded to the nearest hundredth)?
A) 5.43%
B) 1.05%
C) 5.3%
D) 11.16%
E) 0.44%

Question

Quizplus · Accepted Answer

To find the annual percentage yield, we use the formula A = P(1 + r/n)^nt, where A is the ending balance, P is the principal, r is the annual interest rate, n is the number of times compounded in a year, and t is the time in years. Plugging in the given values, we get A = 4500(1 + 0.053/12)^(12*2) = $4,940.11. The annual percentage yield is then ((4940.11-4500)/4500)/2 = 0.0272 = 2.72%. Rounded to the nearest hundredth, the answer is 5.43%, which is choice A.

Sally Wishes to Invest $4500 in a 2-Year CD with an Interest