A trust company offers 3-year compound-interest GICs earning 4.8% compounded monthly or 4.9% compounded semi-annually. Which rate should an investor choose?

Compounded Monthly

An interest calculation method where interest is added to the principal once a month, affecting the overall interest earned or paid.

GICs

Known as Guaranteed Investment Certificates in Canada, these investments assure a certain rate of return within a predetermined period.

Investor

An individual or organization that allocates capital with the expectation of receiving financial returns.

Comprehend and implement the principle of compound interest along with its computations for different compounding intervals.
Examine and contrast various savings and investment alternatives such as Guaranteed Investment Certificates, Registered Retirement Savings Plans, and loans.
Comprehend and compute the effective interest rate across various compounding intervals.

Verified Answer

Final Answer :

4.9% compounded semi-annually

Learning Objectives

Comprehend and implement the principle of compound interest along with its computations for different compounding intervals.
Examine and contrast various savings and investment alternatives such as Guaranteed Investment Certificates, Registered Retirement Savings Plans, and loans.
Comprehend and compute the effective interest rate across various compounding intervals.