A friend tells you he is interested in a market - linked GIC ( MLGIC ) offered
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Question:
A friend tells you he is interested in a marketlinked GIC MLGIC offered by Canadian Bank of the Empire. This MLGIC has the following terms
It is a year nonredeemable product
A guaranteed return of
It allows you to fully participate in the return price appreciation of the TSX index up to
The current level of the TSX index is The index has a dividend yield of and its volatility standard deviation of returns is
Canadian Bank of the Empire also offers a plain vanilla year nonredeemable GIC that pays pa Assume a $ investment and a risk free rate of
a Theplain vanilla OR MLGIC product dominates theMLGIC OR plain vanilla product by dollars.
bIf the MLGIC had a participation rate that is you only got of the price appreciation over and no maximum upside, the value of the MLGIC would be dollars.
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