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Suppose a bank offers you the following two year, non - cashable GICs ( i . e . , withdrawals are not allowed ) .
Suppose a bank offers you the following two year, noncashable GICs ie withdrawals
are not allowed The first one pays a monthly rate of return the second one
pays a semiannual rate of return of and the third one a return of for the first
year and for the second year. All interest payments are reinvested.
a Which investment would you prefer?
b Suppose now that the third GIC offers you the option to withdraw your investment
at a penalty of at the end of the first year. At what market interest rate for a
one year investment at the second year will you exercise this option?
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