The interest rate on loan would be an effective 5% per semiannual, compounded monthly. What is the APY(annual percentage yield)

The APY is 10.43%.

Explanation:

The annual percentage yield (APY) can be described as the real rate of return that is earned on investment or a saving deposit considering the impact of compounding interest. It is different from a simple interest rate that does take into account the effect of compounding interest.

APY can be calculated using the following formula:

APY = [(1 + r)^n] - 1 (1)

Where, for this question;

r = monthly interest rate = 5% / 6 = 0.83%, or 0.0083

n = Number of compounding periods per year = 2 semiannual in a year * 6 months = 12

Substituting values into equation (1), we have:

APY = [(1 + 0.0083)^12] - 1

APY = 1.1043 - 1

APY = 0.1043, or 10.43%

Therefore, the APY is 10.43%.

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