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URL:  http://boards.fool.com/ok-you-foolish-mathmaticians-i-need-a-little-11639438.aspx

Subject:  Re: How much is 5.25% APY anyway.. Date:  12/10/1999  11:54 AM
Author:  SpaceEngineer Number:  21618 of 308846

OK you foolish mathmaticians, I need a little help. Im not the greatest with math so here goes. Im trying to decipher exactly how this works and how
much money I would make on intermediate savings account.

If Providian National is offering an APY of 5.25% on $2000 that's being compounded daily. How do I really figure out how much money I'd be getting in
interest for sayyy 2yrs.


Correct me if I'm wrong, but I believe that Annual Percentage Yield (APY) is how much your money earns in a year, and takes into account the compounding. Therefore, after one year, your $2000 gains 5.25% and thus becomes $2105. The second year, that $2105 gains 5.25% and becomes $2215.51.

Annual Percentage Rate is a smaller number. To convert to APY, you must divide APR by the number of compounding periods, and that to one, raised that number to the number-of-compounding-periods-in-a-year and subtract one.

Assume APR of 5.117% and daily compounding (365 days a year [this year, at least.])

APY = ((1 + (APR/365))^365) - 1

APY = ((1 + (0.05117/365))^365) - 1 = 0.0525 (5.25%)

People borrowing your money (savings accounts, etc.) like to quote APY, as it is a larger number, and people loaning you money (CC's, car loans, etc.) like to quote APR as it is smaller.

John

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