Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

What is the annual percentage yield (APY) for a one-year $4,000 investment in a security that pays 5% interest compounded annually?

5.00%

5.12%

4.88%

4.75%

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Verified step by step guidance

Understand the concept of Annual Percentage Yield (APY): APY represents the effective annual rate of return taking into account the effect of compounding interest. It is calculated using the formula: APY = (1 + r/n)^n - 1, where r is the nominal interest rate, and n is the number of compounding periods per year.

Identify the given values in the problem: The nominal interest rate (r) is 5% or 0.05, the investment period is one year, and the compounding frequency (n) is annually, meaning n = 1.

Substitute the values into the APY formula: APY = (1 + 0.05/1)^1 - 1. This simplifies to APY = (1 + 0.05)^1 - 1.

Perform the calculation inside the parentheses first: Add 1 to 0.05 to get 1.05.

Raise the result to the power of 1 (since compounding is annual) and subtract 1 to find the APY. This will give the effective annual yield for the investment.