Chapter 11.I, Problem 25RE

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

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 (APY).Principal Nominal Interest Compound Interest Annual PercentageRate (%) Compounded Earned in 1 Year Yield (APY)___________________________________________________________________________$2,000 4 annually To determine To calculate: The compound interest earned in 1 year and the annual percentage yield (APY) for the investment with principal$2,000 is made at 4% compounded annually.

Explanation

Given information:

An investment with principal $2,000 is made at 4% compounded annually. Formula used: Compounding period can be defined as the duration or length of time from one interest payment to the next. If an investment made for 4 years at 6% compounded annually (once per year) then it would have four compounding period which can be calculated by formula given below: Compounding periods=Term of investments(years)×m Here, m is the period per year. The interest rate per period can be calculated by dividing the annual, or nominal, rate by the number of periods per year, Interest rate per period=Nominal ratePeriod per year The compound amount (Future value) can be calculated by the formula given below: Compound amount=Table factor×Principal In table 11-1, the table factor is the intersection of the rate-per-period column and the number-of-periods row is the future value of$1 at compound interest.

The compound interest can be calculated by the formula given below:

Compound interest=Compound amountPrincipal

The annual percentage yield (APY) can be calculated by the formula given below:

APY=Total compound interest earned in 1 yearPrincipal

Calculation:

Consider the investment with principal \$2,000 is made at 4% compounded annually and solve as shown below

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