a) You are considering moving your money to a new bank offering a one-year GIC that pays an 8% APR with monthly compounding. Your current bank offers to match the rate you have been offered by the rival. The account at your bank would pay interest every six months. What is the APR they should offer you to convince you to stay?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Suppose the current one-year interest rate is 6%. If it is known with certainty that the
one-year interest rate will be 5% next year, 2% the following year,
3% a year after that
and continue to rise by 1% per year until it returns to 6% where it will remain from
then on. What will the interest rates r1, r2, ., rs of the yield curve be today?
r2
rs
Transcribed Image Text:Suppose the current one-year interest rate is 6%. If it is known with certainty that the one-year interest rate will be 5% next year, 2% the following year, 3% a year after that and continue to rise by 1% per year until it returns to 6% where it will remain from then on. What will the interest rates r1, r2, ., rs of the yield curve be today? r2 rs
a) You are considering moving your money to a new bank offering a one-year GIC that
pays an 8% APR with monthly compounding. Your current bank offers to match the
rate you have been offered by the rival. The account at your bank would pay interest
every six months. What is the APR they should offer you to convince you to stay?
Transcribed Image Text:a) You are considering moving your money to a new bank offering a one-year GIC that pays an 8% APR with monthly compounding. Your current bank offers to match the rate you have been offered by the rival. The account at your bank would pay interest every six months. What is the APR they should offer you to convince you to stay?
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