Asked by Somtochi Ibezim on May 10, 2024
Verified
A bank offers a rate of 5.0% compounded semiannually on its four-year GICs. What monthly compounded rate should the bank offer on four-year GIC's to make investors indifferent between the alternatives?
Compounded Semiannually
A method of calculating interest where the accrued interest is added to the principal sum and interest is then calculated on the new total twice a year.
Monthly Compounded
Interest calculation in which the interest is added to the principal balance monthly, allowing earnings to increase at a faster rate compared to annual compounding.
- Find the equivalent interest rates for differing compounding frequencies.
Verified Answer
LP
Learning Objectives
- Find the equivalent interest rates for differing compounding frequencies.