What is the annual percentage yield or effective annual rate

Solution

helpfull Effective Annual Rate will be about 7.22%. A nominal interest rate of 7% will become 7%/12 months = 0.583% per month (0.07/12 months = 0.00583 per month). Compounding monthly (1 + 0.00583)^12 = 1.0722 which becomes 1.0722 - 1 = 0.0722 = 7.22%.