For Principal Amounts of $5,000 to $49,999, a Bank Pays

question 87

Short Answer

For principal amounts of $5,000 to $49,999, a bank pays an interest rate of 0.95% on 180- to 269-day non-redeemable GICs, and 1.00% on 270- to 364-day non-redeemable GICs. Ranjit has $10,000 to invest for 364 days. Because he thinks interest rates will be higher six months from now, he is debating whether to choose a 182-day GIC now (and reinvest its maturity value in another 182-day GIC) or to choose a 364-day GIC today. What would the simple interest rate on 182-day GICs have to be on the reinvestment date for both alternatives to yield the same maturity value 364 days from now?

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