In a world characterized by rising interest rates, many financial institutions use a stepped yield GIC...

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In a world characterized by rising interest rates, many financial institutions use a stepped yield GIC (Guaranteed Investment Certificate) to make investors think they are earning a higher rate of return than they actually are. In an example from a few years ago, the bank advertised the following yields: Year t: 2% Year 2 2.5% Year 3: 2.75% Year 4: 3,5% Year 5: 8.5% What is the annually compounded rate of return from this investment? Multiple Choice 3.82% 3.85% 2.75% 4.11% In a world characterized by rising interest rates, many financial institutions use a stepped yield GIC (Guaranteed Investment Certificate) to make investors think they are earning a higher rate of return than they actually are. In an example from a few years ago, the bank advertised the following yields: Year t: 2% Year 2 2.5% Year 3: 2.75% Year 4: 3,5% Year 5: 8.5% What is the annually compounded rate of return from this investment? Multiple Choice 3.82% 3.85% 2.75% 4.11%

Answer rating: 100% (QA)

Solution Annualized return 1r 1 x 1r 2 x 1r 3 x x 1r n 1n 1 r 1 r 2 r 3 r n are ... View the full answer