Annual Percentage Yield
Annual Percentage Yield is a standardized illustration of annual interest rate in finance, depending on the compounding time of one year.
Calculator of Annual Percentage Yield
Formula of Annual Percentage Yield
APY = (1 + r/n)n – 1
Where,
- APY = Annual Percentage Yield
- r = stated annual interest rate
- n = number of compounding periods per year
Example of Annual Percentage Yield
A man got loan from the bank with a 5% stated annual interest rate. The bank compounds the interest for 8 months. Calculate the annual percentage yield.
Given
Interest rate (r) = 5% = 0.05 Number of compounding periods (n) = 8
To Find
APY
Solution:
APY = (1 + r/n)n – 1
= (1 + (0.05 / 8))8 – 1
= (1 + 0.00625)8 – 1
= 1.006258 – 1
= 1.0511 – 1
= 0.0511
= 5.11 %
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