Understanding APR and APY Differences

The video tutorial explains the difference between APR (Annual Percentage Rate) and APY (Annual Percentage Yield), highlighting how APR compounds over time. It provides a detailed example of calculating APR on a $5,000 loan with a 10% interest rate, demonstrating how compounding daily affects the total amount paid. The tutorial also covers the concept of the daily periodic rate and compares effective APR to standard APR, showing the impact of compounding on interest rates. The video concludes by emphasizing the importance of understanding these concepts in financial decision-making.

What does APR stand for?

• Annual Payment Rate

• Annual Percentage Rate

• Annual Profit Rate

• Annual Principal Rate

What is another name for Effective APR?

• Annual Principal Yield

• Annual Percentage Yield

• Annual Profit Yield

• Annual Payment Yield

In the example, what is the initial loan amount?

• $15,000

• $1,000

• $10,000

• $5,000

If the APR is 10%, what would be the total payment without compounding?

• $6,000

• $5,000

• $5,250

• $5,500

How often does the APR compound in the given example?

• Monthly

• Weekly

• Daily

• Biweekly

What is the daily periodic rate based on?

• The biweekly interest rate

• The weekly interest rate

• The monthly interest rate

• The annual interest rate divided by 365

What is the formula used to calculate the amount paid on the first day?

• 1 + 0.1 / 365

• 1 + 0.1 / 14

• 1 + 0.1 / 52

• 1 + 0.1 / 12

What is the significance of the daily periodic rate?

• It determines the weekly interest

• It determines the daily interest

• It determines the monthly interest

• It determines the annual interest

By day 365, what is the exponent used in the compounding formula?

• 14

• 365

• 52

• 12

What is the total amount paid after one year with daily compounding?

• $5,650

• $5,600

• $5,552

• $5,500