Question
You attempt to finance a 6-year guaranteed investment contract (GIC). The payment made by the policyholder is $10 million. Suppose the promised annual interest rate
You attempt to finance a 6-year guaranteed investment contract (GIC). The payment made by the policyholder is $10 million. Suppose the promised annual interest rate of the GIC is 10%. The bond you want to use is a 6-year, 10% annual coupon rate bond (semi-annually paid). Its face value is $10 million and you bought at par. Suppose the new interest rate in the 6-year life of GIC is 12%. Answer the following questions:
1. What is the promised payment of the GIC?
2. Calculate the total return of investing in the bond.
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
12th Canadian edition
978-1119496496
