APY

APY (Annual Percentage Yield) is the true rate of return earned taking in compounding interest.
Also known as the Annual Effective Rate, the formula for APY is as follows:

APY = ( 1 + APR / n ) ^ n – 1
Periodic Rate = ( 1 + APY ) ^ ( 1 / n ) – 1
n = Frequency of compounding within a year

APY is used in the context of net returns expected by investors: i.e. equity return rate.

For any given APR, the corresponding APY will always be a little higher depending on how many times it is compounded within the year.

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