Chapter 11, Problem 7AT

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

For the following investments, compute the amount of compound interest earned in 1 year and the annual percentage yield. Round APY to the nearest hundredth of a percent.

Principal |
Time Period (years) |
Interest Compounded |
New Table Factor |
Compound Interest |

$8,500 | 12 | Monthly | _______ | _______ |

To determine

**To calculate:** The amount of compound interest earned in

Explanation

**Given Information:**

An investment of principal

**Formula used:**

Interest rate per period:

It can be calculated by dividing the annual rate by the number of periods per year.

Compounding periods:

It can be calculated by multiplying the number of years by the number of periods per year.

Annual Percentage Yield:

It can be calculated by finding the total compound interest earned in

Compound amount:

It can be calculated by multiplying the table factor with principal.

Compound Interest:

It can be calculated by subtracting the principal from compound amount.

**Calculation:**

The values of investment are:

Principal:

Nominal rate:

Interest compounded: monthly

Calculate the interest rate per period and number of compounding periods.

Substitute the values in the formula for interest rate per period and simplify,

Substitute the values in the formula for compounding periods and simplify,

Thus, interest rate per period is

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