First Dominion Bank offers a two-year "Rising Rate" GIC. For the first year the interest rate is 4.5% compounded semi-annually and for the second year the rate is 5.5% compounded semi-annually. What will be the maturity value of a $50,000 two-year "Rising Rate" GIC?
A) $51,770
B) $52,500
C) $55,000
D) $55,190
E) $57,765

Question

Quizplus · Accepted Answer

To calculate the maturity value, first calculate the value at the end of the first year using the formula for compound interest: A = P(1 + r/n)^(nt). For the first year: A = 50000(1 + 0.045/2)^(2*1) = $51,134.06. For the second year, use this amount as the principal: A = 51134.06(1 + 0.055/2)^(2*1) = $55,190.

First Dominion Bank Offers a Two-Year "Rising Rate" GIC