Consider an account with an APR of $6 \%$. Find the APY with quarterly compounding, monthly compounding, and daily compounding. Comment on how changing the compounding period affects the annual yield.
When interest is compounded quarterly, the APY is $6.14 \%$.
(Do not round until the final answer. Then round to two decimal places as needed.)
When interest is compounded monthly, the APY is $6.17 \%$.
(Do not round until the final answer. Then round to two decimal places as needed.)
When interest is compounded daily, the APY is $\square \%$.
(Do not round until the final answer. Then round to two decimal places as needed.)
Rounding to two decimal places, the APY with daily compounding is \(\boxed{6.18\%}\)
Step 1 :Given the formula for APY (Annual Percentage Yield) is: \(APY = (1 + \frac{r}{n})^{nt} - 1\)
Step 2 :Where: \(r = 0.06\) (annual interest rate in decimal form), \(n = 365\) (number of compounding periods per year), and \(t = 1\) (number of years)
Step 3 :Substitute these values into the formula: \(APY = (1 + \frac{0.06}{365})^{365*1} - 1\)
Step 4 :Calculate the value inside the parentheses: \(1 + \frac{0.06}{365} = 1.00016438356\)
Step 5 :Raise this value to the power of 365: \((1.00016438356)^{365} = 1.06183474714\)
Step 6 :Subtract 1 and multiply by 100 to convert to a percentage: \((1.06183474714 - 1) * 100 = 6.183474714\%\)
Step 7 :Rounding to two decimal places, the APY with daily compounding is \(\boxed{6.18\%}\)