A bank offers a CD at an annual interest rate of 7% compounded monthly. Find the APY (in percent). Round to the nearest hundredth of a percent. (See Example 7 in this section.)

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To find the Annual Percentage Yield (APY) for a CD with an annual interest rate of 7% compounded monthly, we use the formula:

\[
\text{APY} = \left(1 + \frac{r}{n}\right)^n - 1
\]

where:
- \( r = 0.07 \) (the nominal annual interest rate, 7%)
- \( n = 12 \) (the number of compounding periods per year, since it is compounded monthly)

Let's calculate the APY using this formula.The Annual Percentage Yield (APY) for a CD at an annual interest rate of 7% compounded monthly is **7.23%**.

Would you like more details or have any questions?

Here are 5 related questions to expand on this topic:

1. How does the compounding frequency affect the APY for a given nominal interest rate?
2. What is the formula for calculating APY if the compounding is done quarterly instead of monthly?
3. How would the APY change if the nominal interest rate were 8% instead of 7%, compounded monthly?
4. What is the difference between the nominal interest rate and the effective interest rate (APY)?
5. How can APY help in comparing different savings or investment options?

**Tip:** Always compare APYs, not nominal interest rates, when choosing between different investment options, as APY accounts for the effects of compounding.

Learn how to calculate the Annual Percentage Yield (APY) for a Certificate of Deposit (CD) with a 7% annual interest rate compounded monthly. The APY is crucial for understanding the effective return on investment. Get a detailed explanation and formula application.

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