annual interest rate of interest of 4%. At the end of the year, the interest received is $4. Sup- pose, instead, that $100 is invested for one year at an annual rate, but the interest is paid semiannually at 2% (one-half the annual interest rate). The interest at the end of the year is found by first calculating the future value of $100 one year hence:   $100(1.02)2= $104.04   Interest is therefore $4.04 on a $100 investment. The interest rate or yield on the $100 invested is 4.04%. The 4.04% is called the effective annual yield. Investors in certificates of deposit will at once recognize the differ- ence between the annual interest rate and effective annual yield. Typi- cally, both of these interest rates are quoted for a certificate of deposit, the higher interest rate being the effective annual yield. To obtain the effective annual yield corresponding to a given peri- odic rate, the following formula is used:   Effective annual yield = (1 + Periodic interest rate)m- 1   where m is equal to the number of payments per year. MoneyMarketCalculations     To illustrate, suppose the periodic yield is 2% and the number of paymentsperyearis two. Therefore,     Effective annual yield = (1.02)2- 1 = 0.0404 or 4.04%   We can also determine the periodic interest rate that will produce a given effective annual yield. For example, suppose we need to know what semiannual interest rate would produce an effective annual yield of 5.25%. The following formula can be used:   Periodic interest rate = (1 + Effective annual yield)1/m- 1   Using this formula to determine the semiannual interest rate to pro- duce an effective annual yield of 5.25%, we find     Periodic interest rate = (1.0525)1/2- 1 = 0.0259 or 2.59%