What is the annual nominal rate compounded daily
for a bond that has an annual yield of 5.4%?
To calculate APY for a given nominal interest rate, you need
to know the nominal rate r as a decimal, and the number of compounding periods
per year, N. The general formula is APY = (1 + r/N)^N.
When the interest is compounded daily, N = 365, thus
APYDAILY = (1 + r/365)365 - 1.
An investment which states 5.400% nominal rate and
compounding 365 times per year results in an effective rate of 5.548%.
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