Asked by Sydney Morehouse on May 13, 2024
Verified
Suppose that the current rates on 60 and 120-day GICs are 1.50% and 1.75% simple interest, respectively. An investor is weighing the alternatives of purchasing a 120-day GIC versus purchasing a 60-day GIC and then reinvesting its maturity value in a second 60-day GIC. What would the interest rate on 60-day GICs have to be 60 days from now for the investor to end up in the same financial position with either alternative?
GICs
Guaranteed Investment Certificates are a form of investment in Canada that ensures a fixed rate of return for a specific duration.
Simple Interest
Interest calculated on the principal amount of a loan or deposit, not including any previously earned interest.
Financial Position
Represents the net worth of an entity, detailing assets, liabilities, and shareholders' equity at a specific point in time.
- Examine how variations in interest rates determine the maturity value of diverse financial instruments like GICs, Treasury Bills, and savings accounts.
- Examine investment opportunities through comparison of simple interest rates and expected yields.
Verified Answer
AZ
Learning Objectives
- Examine how variations in interest rates determine the maturity value of diverse financial instruments like GICs, Treasury Bills, and savings accounts.
- Examine investment opportunities through comparison of simple interest rates and expected yields.