Finance
In Montana, the 'annual percentage yield' (APY) on a savings account differs from the interest rate because APY:
AIs always lower than the stated interest rate
BReflects the effective annual return including the effect of compounding, making it higher than the simple annual rate when interest compounds more than annually✓ Correct
CIs set by the Montana Department of Revenue
DOnly applies to commercial deposit accounts
Explanation
APY reflects the effective annual return after compounding. When interest is compounded monthly, quarterly, or daily, the APY will be higher than the stated annual interest rate because of the compounding effect.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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