For a Given Term of Compound-Interest GIC, the Nominal Interest

question 23

Short Answer

For a given term of compound-interest GIC, the nominal interest rate with annual compounding is typically 0.125% higher than the rate with semi-annual compounding and 0.25% higher than the rate with monthly compounding. Suppose that the rates for 5-year GICs are 3.00%, 2.875%, and 2.75% for annual, semi-annual, and monthly compounding, respectively. How much more will an investor earn over 5 years on a $10,000 GIC at the most favourable rate than at the least favourable rate?

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Definitions:

Stock Price

The cost or value of a single share of a company's stock, fluctuating based on supply and demand in the market.

Median

The middle value in a sorted list of numbers.

Mode

The value that appears most frequently in a set of data.

Mean

The average of a set of numbers, calculated by dividing the sum of all the numbers by the count of the numbers.