Problem 5-5

You are considering moving your money to new bank offering a one-year GIC that pays an

5 %

APR with monthly compounding. Your current bank's manager offers to match the rate you have been offered. The account at your current bank would pay interest every six months. How much interest will you need to earn every six months to match the GIC?

First convert APR into a monthly discount rate:

The monthly discount rate is

%.