Option1: I = Po^r*t = 1000*0.0448*(120/360) = $14.93.
Option2: I = 1000*r*(60/360) = $14.93.
1000r/6 = 14.93,
1000r = 89.60,
r = 0.0896 = 8.96%.
Rob has $1,000 to invest for 120 days and is considering two options.
Option 1: He can invest the money in a 120-day GIC paying simple interest of 4.48%.
Option 2: He can invest the money in a 60-day GIC paying simple interest of 4.50% and then re-invest the maturity value into another 60-day GIC.
What would the interest rate on the second 60-day GIC have to be for both options to be equivalent?
So far I have got:
Option 1:
1000(1+.0448)(120/365)=1014.73
Option 2:
1000(1+.045)(60/365)=1007.39
1007.39(1+.45)(60/365)=1014.84
I know i should use the formula R=I/PT im just not sure what numbers to plug in to find the equivalent rate.. Can anyone show me how to solve this? The answer is not in the back of the book.
1 answer
2 answers