Quant Methods: Basic Concepts

[Atomic_Sheep]

Hi Guys, reading example 8 reads:

[question removed by admin]

1.) What is a GIC?

2.) since it’s paying $100k with 8% return rate, does that mean that after year 6, this GIC will start accruing 8% interest annually? So the insurance company will be paying interest on this $100k?

3.) The fact that the insurer pays 8% and the insurer must invest a PV at 8% is a concidence or is this implying the market interest rate is 8%?

[S2000magician]

@Atomic\_Sheep

1.) What is a GIC?

It’s a guaranteed investment contract, as stated: you invest a certain amount today, and the insurance company guarantees you a certain amount at a given time in the future.

@Atomic\_Sheep

2.) since it’s paying $100k with 8% return rate, does that mean that after year 6, this GIC will start accruing 8% interest annually? So the insurance company will be paying interest on this $100k?

At the end of year 6, the contract is terminated and the insurance company pays the investor $100,000. There is no after year 6.

@Atomic\_Sheep

3.) The fact that the insurer pays 8% and the insurer must invest a PV at 8% is a concidence or is this implying the market interest rate is 8%?

The market rate is 8%.