Asked by Austin Walters on May 16, 2024

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Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 3.75%. What nominal annual rates should it quote for the three compounding options?

Effective Interest Rate

The actual interest rate that a borrower pays or earns on a loan or investment, taking into account the effect of compounding.

Compounded Options

A financial derivative instrument that contains an option that itself has a feature making its payoff at least partially dependent on the future level of interest rates.

GICs

A kind of investment in Canada known as Guaranteed Investment Certificates that provide a promised return rate for a specified duration.

  • Calculate and evaluate the effective annual rates across various compounding intervals.
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Neyla SilvaMay 17, 2024
Final Answer :
3.75% compounded annually; 3.72% semiannually; 3.69% monthly