Would you rather invest in an account with

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�Would you rather invest in an account with APR of 3% compounded annually or

�Would you rather invest in an account with APR of 3% compounded annually or 3. 5% compounded daily? Why? Journal

APY – Annual Percentage Yield UNIT 2: INTEREST Day 5

APY – Annual Percentage Yield UNIT 2: INTEREST Day 5

Rate at which your money earns simple interest in one year. Annual Percentage Yield

Rate at which your money earns simple interest in one year. Annual Percentage Yield (APY)

�Read the article “APR and APY: Why Your Bank Hopes You Can’t Tell the

�Read the article “APR and APY: Why Your Bank Hopes You Can’t Tell the Difference. ” �Answer questions 1 – 4 on your notes in complete sentences.

Why is the Annual Percentage YIELD larger than the Annual Percentage RATE? �APY takes

Why is the Annual Percentage YIELD larger than the Annual Percentage RATE? �APY takes into account the Compounding Frequency of an investment.

Plug in your values to the following formula: � How to find APY given

Plug in your values to the following formula: � How to find APY given APR

�Sally invests $8000 in an account for 5 years, the annual interest rate is

�Sally invests $8000 in an account for 5 years, the annual interest rate is 5% compounded quarterly. a. Calculate the annual percentage yield. b. Use the APY as a COMPOUNDED ANNUALLY interest rate to find how much money Sally has in her account after 5 years. Example 1

�You invest $3000 in an account for 1 year. The account earns interest at

�You invest $3000 in an account for 1 year. The account earns interest at an annual rate of 3. 5% compounded monthly. a. Calculate the APY for the account. b. Use the APY as a COMPOUNDED ANNUALLY interest rate to find how much money you have in your account after 12 years. Example 2

�Bob opened a credit card at a department store with an APR of 23.

�Bob opened a credit card at a department store with an APR of 23. 99% compounded monthly. What is the interest rate that Bob is really being charged? �(Hint: APY) Example 3

Ashley is comparing three investment accounts offering different rates. Option A: APR of 4.

Ashley is comparing three investment accounts offering different rates. Option A: APR of 4. 95% compounding monthly Option B: APR of 4. 85% compounding quarterly Option C: APR of 4. 895% compounding daily �She wants to earn at least a 5% annual yield. Which account(s) will give Ashley the yield she wants? Example 4

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