Answer
The effective annual yield is 5.61% the same amount of the money would earn 5.61% in a simple interest account for a year.
Work Step by Step
Calculation of effective annual yield can be done with the mentioned formula:
\[Y={{\left( 1+\frac{r}{n} \right)}^{n}}-1\]
Where r denotes the rate of interest, and n denotes the number of times compounding is done in a year and Y denotes the effective annual yield. Compute the effective annual yield by substituting the values in the formula as mentioned below:
\[\begin{align}
& Y={{\left( 1+\frac{r}{n} \right)}^{n}}-1 \\
& ={{\left( 1+\frac{0.055}{4} \right)}^{4}}-1 \\
& ={{\left( 1+0.01375 \right)}^{4}}-1 \\
& =5.61percent
\end{align}\]
Hence, the effective annual yield is 5.61% the same amount of the money would earn 5.61% in a simple interest account for a year.
