How to Convert Annual Percentage Yield to Annual Percentage Rate - Definition, Formula and Example

How to Convert APY to APR - Tutorial

Definition:

Annual Percentage Yield refers to the effective interest rate which is paid on an investment over the given period time based on the annual percentage rate.

Annual Percentage Rate is the interest rate charged on the amount borrowed and it replicates the annual cost of borrowing money.

Formula:

Periodic Rate = (1 + APY)1/n - 1 APR = Periodic Rate x n
Where,
n = Number of Periods APY = Annual Percentage Yield APR = Annual Percentage Rate

Example :

David deposited 7% interest rate on his investment for 12 months then, what will be the David's annual percentage rate?

Given :

APY = 7% = 0.07 Number of Period (n) = 12 months

Solution :

Periodic Rate = (1 + APY)1/n - 1 = (1 + 0.07)1/12 -1 = 1.005654145 -1 = 0.005654145 APR = Periodic Rate x n = 0.005654145 x 12 = 0.06784974 = 6.785 %

Result :

Annual Percentage Rate is 6.785 %

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