How would you determine the effective annual yield for $1 invested for 1 year at 3.5% compounded quarterly?

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Answer 1 · 2017-11-16T15:15:48

$0.035

When the interest compounded quarterly, we will get interest 4 times in a year and interest percent will become 1/4 times.

Here, Investment (P) = $1, Year ( n) = 1 x 4 = 4 Rate of interest (r) = 3.5 x 1/4 .
We have to calculate the yield.

We know, Here A = #P[1+(r/4)/100]^(nxx 4)}# [where A = Investment + Interest or yield]

So, Yield = A - P

#rArr P[1 + (r/4)/100]^(nxx4) - P#

#rArr P[ {1 + 3.5/400}^(1xx 4) - 1 ]#

#rArr 1 [{1+7/800}^4 - 1 ]#

#rArr {807/800}^4 - 1#

#rArr 1.035462 - 1#

#rArr 0.035#