Suppose your savings account pays an annual rate of 3% compounded monthly. What is the yield on this account?
A)2.25%
B)2.68%
C)3.04%
D)3.27%

Question

Quizplus · Accepted Answer

The yield on this account can be calculated using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (initial investment), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. For an annual rate of 3% compounded monthly, the effective annual yield (EAY) can be calculated as follows: EAY = (1 + 0.03/12)^(12) - 1. This simplifies to approximately 3.04%, making option C the correct answer.

Suppose Your Savings Account Pays an Annual Rate of 3