Asked by Brian Dykstra on Jun 24, 2024
Verified
Suppose that the current rates on 90-and 180-day GICs are 3.25% and 3.50% simple interest, respectively. An investor is weighing the alternatives of purchasing a 180-day GIC versus purchasing a 90-day GIC and then reinvesting its maturity value in a second 90-day GIC. What would the interest rate on 90-day GICs have to be 90 days from now for the investor to end up in the same financial position with either alternative?
GICs
Guaranteed Investment Certificates, a type of Canadian investment that offers a fixed return rate over a predetermined period.
Simple Interest
Interest determined exclusively on the original amount, or on the remaining amount of the principal that is not yet paid.
Financial Position
A snapshot of what a company owns and owes at a specific point in time, encompassing assets, liabilities, and equity.
- Calculate and compare returns on different financial investments over various periods.
Verified Answer
DE
Learning Objectives
- Calculate and compare returns on different financial investments over various periods.