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URL:  https://boards.fool.com/grold-you-wrote-the-money-market-account-will-31436174.aspx

Subject:  Re: YTM vs APR Date:  10/1/2014  5:55 PM
Author:  joelcorley Number:  35381 of 36864

grold,

You wrote, The money market account will have $10 in the safe if it is compounded yearly or $10 and 5c if compounded daily based on this calculator...

Your statement is unclear to me. Let me restate it, If I place $10 in a money market paying 1% APY, compounded yearly, I will have $10.10 at the end of the year. If I change the compounding to daily, I will have $10.10 at the end of the year.

If you change the compounding rate, the amount owned at the end of the year will never change so long as the APY is unchanged. That is the point of APY - it states what interest you will receive, as a percentage of your principal investment, after one year's time - assuming the principal investment remains constant and interest payments are reinvested at the same rate.

Now if you were talking APR, that would change from 1.00% to something like 0.99% for the same scenario. That's because it is talking about what you receive for a given interest payment without compounding. APR is the coupon rate. The coupon is the total amount of interest you will receive expressed as a percentage of the principal investment after one year, assuming the interest payments are NOT reinvested.

Also, THERE IS SOMETHING I AM DOING WRONG WITH THE CALCULATOR ON THIS PAGE
Or keeping the YTM at 1% and there are 2 semi-annual payments and the coupon is 2%
http://www.investopedia.com/calculator/aoytm.aspx
...then there will be how much in the second safe? $20

from that site..."A bond that pays 2 coupon(s) of 2.00% per year, that has a market value of $1,000.00, and that matures in 1 years will have a yield to maturity of 1.00%."


The investopia calculator is wrong. It is treating the "Maturity in Years" field as the "number of periods" part of the calculation. To calculate it correctly, it should be multiplying that number by 1, 2 or 4 depending on the selected payment frequency ... but it is not.

So please ignore this calculator - its wrong.

- Joel
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