A passbook savings account has a rate of 9 %. find the effective annual yield, rounded to the nearest tenth of a percent, if the interest is compounded monthly.

Calculating Effective Annual Yield

Y = (1 + (r/n)) ^n-1

9.381% = 9.4%

9.38%

Explanation:

effective annual yield = (1 + monthly rate) ¹² - 1

where monthly rate = 9% / 12 = 0.0075

effective annual yield = (1 + 0.0075) ¹² - 1 = 1.0938 - 1 = 0.0938 or 9.38%

The advantage of compound interest is that earned interest will earn more interest by itself.