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A certificate of deposit (CD) is an agreement between a bank and a saver in which the bank guarantees an interest rate and the saver commits to leaving his or her deposit in the account for an agreed-upon period of time. National Trust Savings offers five-year CDs at 8.26% compounded daily, and Bank of the Future offers five-year CDs at 8.29% compounded annually. Compute the annual yield for each institution. (Round your answers to two decimal places.)

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lindaokinawa

Answer:

8.25 / 365 = 0.0226027397 percent daily interest

So the daily compounding gives you

1.000226027397 on your money each day

1.000226027397^365 = 1.08598855

So this one is better, it's nearly 8.6 % yield,

vs less than 8.3% for the one with annual compounding.

Take 1.0828 or 1.0860 to the fifth power to see the difference over 5 years.

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