Suppose That the Current Rates on 60 and 120-Day GICs

question 143

Short Answer

Suppose that the current rates on 60 and 120-day GICs are 1.50% and 1.75%, respectively. An investor is weighing the alternatives of purchasing a 120-day GIC versus purchasing a 60-day GIC and then reinvesting its maturity value in a second 60-day GIC. What would the interest rate on 60-day GICs have to be 60 days from now for the investor to end up in the same financial position with either alternative?

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Definitions:

Modulations Per Second

A measure of how many times a signal's modulation changes within one second, indicative of the signal’s variation rate.

Pneumatic ABS

An Anti-lock Braking System for air-braked vehicles, particularly large trucks and buses, that prevents wheel lockup during braking.

Reluctor Wheel

A component in an electronic ignition system that works with a sensor to produce a signal, used for determining the engine's position or speed.

Dynamic Footprint

The area of contact and interaction between a moving object, like a tire, and the surface it is on, affecting traction and wear.