About APY Formula
Let us first define APY before studying the APY formula. The annual percentage yield is abbreviated as APY.. Let us first define APY before studying the APY formula. The annual percentage yield is abbreviated as APY. On compounding interest, the annual percentage yield (APY) is the rate earned on the investment. APY stands for annual percentage yield on savings. Let's look at the APY formula and several examples that have been solved.
What is the formula for APY?
The annual percentage return is quickly calculated using the APY formula. It is calculated using the annual interest rate and the number of compounding periods. The APY formula is as follows:
APY = (1 + r/n )n – 1
where,
r = annual interest rate
n = each year's number of compounding periods
Solved example of APY Formula
Example 1: Find the APY on $1000 at the compound interest rate of 5%, compounded monthly.
Solution:
Using the APY formula
APY = (1 + r/n )n– 1
APY = ( 1 + 0.05/12)12 - 1
APY = 0.0511
Answer:The APY is 5.11%
Example 2: Find the APY on $100 at the interest rate compounded quarterly at 6%.
Solution:
Using the APY formula
APY = (1 + r/n )n – 1
APY = ( 1 + 0.06/3)3 - 1
APY = 0.0612
Answer: The APY is 6.12%
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