Q:
      
      
         
            
A chartered bank offers a five-year Escalator Guaranteed Investment Certificate.In successive years it pays annual interest rates of 4%, 4.5%, 5%, 5.5%, and 6%, respectively, compounded at the end of each year. The bank also offers regular five-year GICs paying a fixed rate of 5% compounded annually. Calculate and compare the maturity values of $1000 invested in each type of GIC. (Note that 5% is the average of the five successive one-year rates paid on the Escalator GIC.)
         
       
      
      
      
          
      
      
          Answer & Explanation
         Answer: A) 1276.28         
         
Explanation: FV = $1000(1.04)(1.045)(1.05)(1.055)(1.06) = $1276.14
 the maturity value of the regular GIC is
 
 FV = $ 1000 x =  $1276.28
       
      
      
      
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