A friend tells you he is interested in a market linked GIC offered by Canadian Bank of the Empire. This GIC has the following terms

• It is a 3 year non-redeemable product
• A guaranteed return of2%
• It allows you to fully participate in the return (price appreciation only) of the TSX 60 index up to13%

The current level of the TSX 60 index is 950.33. The index has a dividend yield of 1.5% and its volatility (standard deviation of returns) is 16%.

Canadian Bank of the Empire also offers a standard 3 year non-redeemable GIC that pays 1.75% (annually, EAR). The current risk free rate is 1.1%.

1. The___________(MLGIC/plain vanilla) product dominates the_________(MLGIC/plain vanilla) product by__________ dollars.

--> If the MLGIC had a 70% participation rate (that is you only got 70% of the appreciation over 2%) and no maximum upside, the return on the TSX 60 would need to be greater than_______% for the market link to provide benefits. (if your answer is 0.001985 record 0.1985. If your anwer is 0.015, record 1.5000)