Question

National Trust Savings offers five-year CDs at 8.27% compounded daily, and thd Bank of the Future offers five-year CDs at 8.3% compounded annually. Compute the annual yield for each institution. (round answer to two decimal places.)

Answer 1

Annual yield is the effective annual rate earned taking compounding into the consideration.

Annual yield = (1+period rate)^{number of periods} - 1

National Trust Savings offer five year CDs at 8.27% compounded daily

Number of days in a year = 365 days, so number of periods = 365

Daily return = 8.27/365 = 0.023%

Annual yield = (1+0.00023)³⁶⁵ - 1 = 0.0862 = 8.62%

Bank of the Future offer five year CDs at 8.3% compounded annually

So annual yield = 8.30% as rate is compounded annually

So, annual yield of National Trust Savings is 8.62% and annual yield of Bank of the Future is 8.30%