Bank One offered a 14-year certificate of deposit (CD) at 4

Finance Mar 19, 2021

Bank One offered a 14-year certificate of deposit (CD) at 4.22% interest compounded quarterly. On the same day on the internet, First Bank offered a 14- year CD at 4.21% compounded monthly. Find the APY for each CD. Which bank paid a higher APY?

1.- The APY for the CD at Bank One is ___%?

2.- The APY for the CD at First Bank is ____%?

Which bank paid a higher APY?

Expert Solution

Computation of APY for each CD:

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

For Bank One:

APY = (1 + 0.0422/4)^4 - 1 = 4.287%

For First Bank:

APY = (1 + 0.0421/12)^12 - 1 = 4.292%

So, First bank paid higher APY.

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