Asked by miguel angel martinez porras on May 09, 2024
Verified
A credit union pays 5.25% compounded annually on five-year compound interest: GICs. It wants to set the rates on its semiannually and monthly compounded GICs of the same maturity so that investors will earn the same total interest. What should be the rates on the GICs with the higher compounding frequencies?
Compounded Annually
Interest calculation method where interest is calculated on the initial principal as well as the interest accumulated over previous periods, applied once per year.
- Calculate the equivalent interest rates for various compounding periods.
- Determine the effective annual rate derived from nominal interest rates with varying periods of compounding.
Verified Answer
MC
Learning Objectives
- Calculate the equivalent interest rates for various compounding periods.
- Determine the effective annual rate derived from nominal interest rates with varying periods of compounding.
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