Which bank has the best effective annual yield?
A)Bank 1 with a nominal rate of 6.45% compounded monthly.
B)Bank 2 with a nominal rate of 6.33% compounded weekly.
C)Bank 3 with a nominal rate of 6.6% compounded yearly.

Question

Quizplus · Accepted Answer

The effective annual yield (EAY) can be calculated using the formula EAY = (1 + i/n)^(n*1) - 1, where i is the nominal interest rate and n is the number of compounding periods per year. For Bank 1, EAY = (1 + 0.0645/12)^(12*1) - 1 = 0.0666 or 6.66%. For Bank 2, EAY = (1 + 0.0633/52)^(52*1) - 1 = 0.0653 or 6.53%. For Bank 3, since it's compounded yearly, the EAY is the same as the nominal rate, 6.6%. Therefore, Bank 1 has the highest effective annual yield.

Which Bank Has the Best Effective Annual Yield