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

question 145

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 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?

---

Definitions:

Predictive Validity

An assessment of whether a test measures what it’s intended to measure, based on whether the test score correlates with another relevant criterion measured later.

Validity

The extent to which a method or procedure measures what it is supposed to measure.

Psychometric View

An approach in psychology that focuses on the measurement of mental functions, intelligence, abilities, and attitudes through the use of tests and questionnaires.

Intelligence

The capacity for learning, understanding, and applying knowledge and skills, and the ability to adapt to new situations.