Asked by Megan Byers on Jun 05, 2024
Verified
A bank offers a rate of 5.3% compounded semiannually on its four-year GICs. What monthly and annually compounded rates should it quote in order to have the same effective interest rate at all three nominal rates?
Effective Interest Rate
The actual annual interest rate that an investor earns or pays, taking into account the effect of compounding over the period.
GICs
Guaranteed Investment Certificates, a secure investment that guarantees to preserve the principal amount while offering a fixed interest rate over a specified period.
Compounded Semiannually
A method of computing interest where the interest is added to the principal twice a year, leading to interest being earned on interest from the next period.
- Achieve the skill to understand and calculate effective interest rates across various compounding intervals.
- Establish comparable interest rates over different compounding intervals.
Verified Answer
JS
Learning Objectives
- Achieve the skill to understand and calculate effective interest rates across various compounding intervals.
- Establish comparable interest rates over different compounding intervals.