Drop down menus: option 1: MLGIC, Option 2: Vanilla GIC

Note: there are drop down menus in parts of the answers. Do not round intermediate calculations. Round final dollar amounts to the nearest cent. A friend tells you he is interested in a market linked GIC offered by Canadian Bank of the Empire. This GIC has the following terms It is a 3 year non-redeemable product A guaranteed return of 3% It allows you to fully participate in the return (price appreciation only) of the TSX 60 index up to 14% The current level of the TSX 60 index is 950.33. The index has a dividend yield of 1% and its volatility (standard deviation of returns) is 20%. Canadian Bank of the Empire also offers a standard 3 year non-redeemable GIC that pays 2.25%. The current risk free rate is 2%. a. The (Click to select) product dominates the (Click to select) product by dollars. b. If the MLGIC had a 70% participation rate (that is you only got 70% of the appreciation over 3%) and no maximum upside, the return on the TSX 60 would need to be greater than % for the market link to provide benefits. (if your answer is 0.001985 record 0.1985. If your anwer is 0.015, record 1.5000) Note: there are drop down menus in parts of the answers. Do not round intermediate calculations. Round final dollar amounts to the nearest cent. A friend tells you he is interested in a market linked GIC offered by Canadian Bank of the Empire. This GIC has the following terms It is a 3 year non-redeemable product A guaranteed return of 3% It allows you to fully participate in the return (price appreciation only) of the TSX 60 index up to 14% The current level of the TSX 60 index is 950.33. The index has a dividend yield of 1% and its volatility (standard deviation of returns) is 20%. Canadian Bank of the Empire also offers a standard 3 year non-redeemable GIC that pays 2.25%. The current risk free rate is 2%. a. The (Click to select) product dominates the (Click to select) product by dollars. b. If the MLGIC had a 70% participation rate (that is you only got 70% of the appreciation over 3%) and no maximum upside, the return on the TSX 60 would need to be greater than % for the market link to provide benefits. (if your answer is 0.001985 record 0.1985. If your anwer is 0.015, record 1.5000)