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For principal amounts of $20,000 to $24,999, a bank pays an interest rate of 1.95% on 90- to 182-day non- redeemable GICs, and 2.00% on
For principal amounts of $20,000 to $24,999, a bank pays an interest rate of 1.95% on 90- to 182-day non- redeemable GICs, and 2.00% on 183 to 364-day non-redeemable GICs. Paul has $20,000 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 amount difference be between the two alternatives assuming interest rates do not change?
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