Posted on March 3, 2010.
Effective yield annual finance homework problem? Is this how you solve this problem:
"You invest in a CD (certificate of deposit) which pays 5.75% compounded quarterly for 6 years. What is the effective annual yield of the CD and what is the total return after 6 years?"
(1 + 5.75/12) ^ 12
If the above formula is correct (please correct me if I'm wrong), how can I enter in a TI-30XIIS? I do not know how to use the key ^ ...
What does the overall performance after 6 years?
Let i = annual percentage rate. Then
(1 + .0575 / 4) ^ (4 * 6) = (1 + i) ^ 6
(1 + .0575 / 4) ^ 24 = (1 + i) ^ 6
(1 + .0575 / 4) ^ 4 = 1 + i
i = (1 + .0575 / 4) ^ 4 - 1 =, 0588, or 5.88%
You want to get into the final calculation of your calculator exactly as I typed. ^ Is for exhibitors.
