Suppose a bank offers you the following GICs all having a maturity of 2 years:

GIC 1: 1.88% with interest paid semi-annually

GIC 2: 2.01% with interest paid annually

GIC 3: 2.01% with interest compounded.

(a) Assume that any interest received can be invested at 2.01% annually. Which investment would you prefer?

(b) Suppose you expect that interest rates decline to 1.5% after the first year. Which investment would you prefer?

(c) Suppose you expect interest rates to increase in 6 months and then stay constant.

What is the break-even interest rate in 6 months so that you would prefer the firstGIC over the other two?