**Equation**

One common mathematical definition of APY uses this effective interest rate formula, but the precise usage may depend on local laws.

where

- is the nominal interest rate and
- is the number of compounding periods per year.

For large *N* we have, approximately,

where *e* is the base of natural logarithms (the formula follows the definition of *e* as a limit). This is a reasonable approximation if the compounding is daily. Also, it is worth noting that a nominal interest rate and its corresponding APY are very nearly equal when they are small. For example (fixing some large *N*), a nominal interest rate of 100% would have an APY of approximately 171%, whereas 5% corresponds to 5.12%, and 1% corresponds to 1.005%.

Read more about this topic: Annual Percentage Yield

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### Famous quotes containing the word equation:

“A nation fights well in proportion to the amount of men and materials it has. And the other *equation* is that the individual soldier in that army is a more effective soldier the poorer his standard of living has been in the past.”

—Norman Mailer (b. 1923)

“Jail sentences have many functions, but one is surely to send a message about what our society abhors and what it values. This week, the *equation* was twofold: female infidelity twice as bad as male abuse, the life of a woman half as valuable as that of a man. The killing of the woman taken in adultery has a long history and survives today in many cultures. One of those is our own.”

—Anna Quindlen (b. 1952)