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Simple APY Calculator – Annual Percentage Yield (APY) represents the real rate of return on an investment, considering the effect of compounding interest over a year. It allows for a standardized comparison between different investment or savings options with varying compounding periods.
APY Formula:
APY=(1+inomN)N−1\text{APY} = \left(1 + \frac{i_{\text{nom}}}{N}\right)^N – 1APY=(1+Ninom)N−1
Where:
- inomi_{\text{nom}}inom is the nominal interest rate.
- NNN is the number of compounding periods per year.
Example Calculation:
For a nominal interest rate of 5% (0.05) compounded monthly (N=12N = 12N=12):
0.051162
(1 + 0.05/12)^12 – 1=0.051162
This means an investment with a 5% nominal interest rate, compounded monthly, has an APY of approximately 5.12%.
Remember, APY is useful for comparing different investment options with varying compounding schedules, as it standardizes the return over a one-year period.
