Distinguishing APR from APY

Michael explains the difference between APR and APY, focusing on how compound interest affects these rates. He uses a practical example involving a CD investment to illustrate how monthly compounding leads to a higher APY compared to the APR. The video encourages viewers to ask questions about personal finance and highlights the benefits of understanding compound interest for saving money.

What does APR stand for?

• Annual Percentage Rate

• Annual Payment Requirement

• Annual Payable Rate

• Annual Percentage Return

What was the APR mentioned for Zach's CD?

• 1.005%

• 1%

• 0.5%

• 1.5%

What is the primary difference between APR and APY?

• APY includes compound interest

• APR is calculated monthly

• APY is always lower than APR

• APR does not involve interest

How is compound interest calculated?

• Interest calculated without adding previous interest

• Interest on both initial and accumulated interest

• Interest on the total amount at year's end

• Interest on the initial amount only

What was the APY for Zach's CD?

• 0.5%

• 1.005%

• 1.5%

• 1%

How does the frequency of compounding affect the interest earned?

• Higher frequency, higher interest

• Fixed interest regardless of frequency

• Higher frequency, lower interest

• No impact on interest

What would be the interest earned if compounding did not occur?

• $50.23

• $50

• $55

• $60

Why is understanding compounding interest beneficial for saving money?

• It has no effect on savings

• It decreases the total amount saved

• It increases the total amount saved

• It complicates the saving process

What action did the presenter encourage if viewers have more questions?

• Send an email

• Post in the comment section

• Ignore their questions

• Call him directly

What does the presenter promise to do in future videos?

• Stop making videos

• Discuss less about finance

• Create more engaging content

• Produce more videos on finance