If an investor has the choice between rates of 5.4% compounded quarterly and 5.5% compounded annually for a six-year GIC, which rate should be chosen?

Compounded Quarterly

Involves calculating interest on an investment by adding the accrued interest back into the principal at the end of each quarter, effectively earning interest on interest.

GIC

Guaranteed Investment Certificate, a Canadian investment that offers a guaranteed rate of return over a fixed period, typically without the risk of losing the principal invested.

Investor

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

Acquire knowledge on the topic of compound interest and apply this concept to perform calculations for assorted compounding frequencies.
Acquire knowledge on how to calculate the effective interest rate given multiple compounding schedules.

Verified Answer

Zayettcy DuarteMay 21, 2024

Final Answer :

5.4% compounded quarterly

Learning Objectives

Acquire knowledge on the topic of compound interest and apply this concept to perform calculations for assorted compounding frequencies.
Acquire knowledge on how to calculate the effective interest rate given multiple compounding schedules.

If an investor has the choice between rates of 5.4% compounded quarterly and 5.5% compounded annually for a six-year GIC, which rate should be chosen?

Definitions

Learning Objectives

Learning Objectives

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