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Jones invests 100000 in a 180-day short term guaranteed investment certificate at a bank, based on simple interest a annual rate 7.5%. After 120 days, interest rates have risen to 9% and Jones would like to redeem the certificate early and reinvest in a 60-day certificate at the higher rate. In order for there to be no advantage in redeeming early and reinvesting at the higher rate, what early redemption penalty (from the accumulated book value of the investment certificate to time 120 days should the bank charge at the time of early re- demption

Jones invests 100,000 in a 180-day short term guaranteed investment certificate at a bank, based on simple interest a annual rate 7.5%. After 120 days, interest rates have risen to 9% and Jones would like to redeem the certificate early and reinvest in a 60-day certificate at the higher rate. In order for there to be no advantage in redeeming early and reinvesting at the higher rate, what early redemption penalty (from the accumulated book value of the investment certificate to time 120 days) should the bank charge at the time of early re- demption?

Mar 09 2021 View more View Less

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