Question

use context clues from this article to answer the questions about commonly used savings options

what is the annual percentage yield (apy)? *
a. the simple interest rate a bank account earns over one year, without considering compounding.

b. the percentage rate indicating how much interest a bank account earns over the course of a year, taking into account compound interest

c. a fixed interest rate that is guaranteed not to change for a specified period of time.

d. a rate that is variable and changes daily based on the federal reserve’s actions.

Explanation:

To determine the correct definition of APY, we analyze each option:

• Option A describes simple interest (no compounding), but APY includes compounding. Eliminate A.
• Option B: APY is the annual rate considering compound interest, which matches its definition.
• Option C: APY is not a fixed, guaranteed rate for a period (that's more like a fixed - rate account's rate, not APY). Eliminate C.
• Option D: APY isn't a daily - changing variable rate based on Federal Reserve actions. Eliminate D.

Answer:

B. The percentage rate indicating how much interest a bank account earns over the course of a year, taking into account compound interest