Effective Annual Yield Concepts

This video tutorial provides a quick lesson on determining the effective annual yield using a TI-84 graphing calculator. It explains the concept of effective annual yield, also known as the effective annual rate or annual equivalent rate, and its importance in comparing different investment accounts. The tutorial covers the formula for calculating the effective annual rate by hand and demonstrates how to use the TI-84 calculator for this purpose. Through examples, it highlights the process of entering interest rates and the number of compounding periods to find the effective annual yield. The video concludes with a reminder of the differences in expressing rates as decimals in formulas and percentages on the calculator.

What is another name for the Effective Annual Yield?

• Compound Interest Rate

• Nominal Rate

• Simple Interest Rate

• Annual Equivalent Rate

Why is the Effective Annual Yield important?

• It is used only for loans.

• It calculates the nominal rate.

• It determines the principal amount required.

• It helps in comparing different investment accounts.

In the formula for EAY, what does 'N' represent?

• The effective annual rate

• The principal amount

• The number of compounds per year

• The nominal rate

What is the first step in calculating EAY using the TI-84 calculator?

• Press the APPS key and select the Finance menu

• Enter the principal amount

• Calculate the nominal rate

• Convert the interest rate to a decimal

When using the TI-84 calculator, how should the interest rate be entered?

• As a decimal

• As a percentage

• As a fraction

• As a whole number

In the first example, what is the compounding frequency?

• Annually

• Quarterly

• Daily

• Monthly

What is the effective annual yield for an 8% interest rate compounded quarterly?

• 8.24%

• 8.75%

• 8.50%

• 8.00%

In the second example, how many times is the interest compounded per year?

• 4

• 6

• 2

• 12

What is a key difference between manual calculation and using the calculator for EAY?

• The calculator requires the principal amount.

• The rate is entered as a percentage on the calculator.

• The calculator does not require the number of compounds.

• The formula is different on the calculator.

What should you remember when using the TI-84 calculator for EAY?

• Always use the nominal rate.

• Enter the rate as a decimal.

• Enter the rate as a percentage.

• Use the principal amount in calculations.