Security National Bank is quoting 1-year certificates of deposit with an interes
ID: 2652226 • Letter: S
Question
Security National Bank is quoting 1-year certificates of deposit with an interest rate of 6% compounded semiannually. Joe Saver purchased a $5,700 CD.
What is the CD’s effective rate (APY)? (Please use the following provided Table.) (Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)
What is the CD’s effective rate (APY)? (Please use the following provided Table.) (Do not round intermediate calculations. Round your answer to the nearest hundredth percent.)
Explanation / Answer
Intial price: $5700
Interest rate= 6% payable at semiannually
Time= 1 year= 2 half year
APY = (1+r/n)^n-1
=(1+6%/2)^2-1
=(1.03)^2-1
=6.09%
The Cd's effective rate (APY) would be 6.09%.