What is the effective annual yield?
Understand the Problem
The question is asking for the definition or calculation of the effective annual yield, which is a key financial concept. This involves understanding how the yield is calculated based on interest rates and compounding periods.
Answer
The total yield an investor receives considering compounding.
The effective annual yield is the total yield an investor receives, accounting for the effects of compounding on investment returns.
Answer for screen readers
The effective annual yield is the total yield an investor receives, accounting for the effects of compounding on investment returns.
More Information
Effective annual yield measures the true annual return on investment by including the effects of interest compounding.
Tips
Don't confuse nominal yield with effective yield. The nominal yield does not account for compounding.
Sources
- Effective Yield - investopedia.com
- Effective Annual Yield | Definition, Formula & Examples - Study.com - study.com
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