Northwest Bank pays a quoted annual (nominal)interest rate of 4.75%.However,it pays interest (compounds)daily using a 365-day year.What is the effective annual rate of return (APY)?
A)4.75%
B)5.02%
C)3.61%
D)4.86%

Question

Quizplus · Accepted Answer

The effective annual rate (APY) can be calculated using the formula: APY = (1 + nominal rate/n)^n - 1, where n is the number of compounding periods per year. For daily compounding, n = 365. So, APY = (1 + 0.0475/365)^365 - 1 ≈ 4.86%.

Northwest Bank Pays a Quoted Annual (Nominal)interest Rate of 4