As an investor, you are searching for the highest possible rate. Which of the following options gives the highest APY?

Question

Quizplus · Accepted Answer

The APY (Annual Percentage Yield) can be calculated using the formula APY = (1 + r/n)^(n*p) - 1, where r is the annual interest rate (APR), n is the number of compounding periods per year, and p is the number of years. For a one-year period, the formula simplifies to APY = (1 + r/n)^n - 1. Compounding more frequently at the same APR results in a higher APY, but since all the APRs are different, we need to calculate each option's APY to compare. Option A, with an APR of 3.25% compounded semiannually, results in the highest APY compared to the other options with lower APRs, even though they compound more frequently.

As an Investor, You Are Searching for the Highest Possible