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This is a reasonable approximation if the compounding is daily. Also, a nominal interest rate and its corresponding APY are very nearly equal when they are small. For example (fixing some large N), a nominal interest rate of 100% would have an APY of approximately 171%, whereas 5% corresponds to 5.12%, and 1% corresponds to 1.005%.
However, if the APY were compounded monthly, the effective rate would be 5.12%, and you would earn $51.16 in interest. Is APY paid monthly? APY is paid in set periods.
APY and interest rate are two different financial concepts, so here’s what you need to know.
It would take you 60 months (or five years) of $266.67 monthly payments to pay off the balance, and you’d end up paying $5,823.55 in interest over that time — about 37% of your total payments.
Converting an annual interest rate (that is to say, annual percentage yield or APY) to the monthly rate is not as simple as dividing by 12; see the formula and discussion in APR. However, if the rate is stated in terms of "APR" and not "annual interest rate", then dividing by 12 is an appropriate means of determining the monthly interest rate.
The terms "APY" and "interest rate" are often used interchangeably when people discuss savings and investments, but there's a very important distinction between the two. While it's important to...
a = dividends and interest collected during the past 30 days; b = accrued expenses of the past 30 days; c = average daily number of outstanding shares that were entitled to distributions; d = the maximum public offering price per share on the last day of the period
Key financial terms like APY and APR can be confusing to interpret, especially when factored into the true cost of borrowing money or the parameters of spending it. Whether you are looking for a...