The Motley Fool Discussion Boards
Personal Finances / Credit Cards and Consumer Debt
|Subject: Re: How much is 5.25% APY anyway..||Date: 12/10/1999 11:54 AM|
|Author: SpaceEngineer||Number: 21618 of 308232|
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.
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|