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Goliath Banking Corporation (GBC) offers an "Income Investment Product" (IIP) for customers. The details for...

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Finance

Goliath Banking Corporation (GBC) offers an "Income Investment Product" (IIP) for customers. The details for this product is as follows:

  • Customers pay $863.52807120123 to buy an IIP.
  • The IIP will pay out $48 at the end of each year for 12 years
  • The IIP will pay out a further single payment of $1,000 after 12 years
  • There are no further payments after this single payment at time 12.

(a) Calculate the return GBC promised to investors that buy this product, expressed an effective annual rate. Give your answer as a percentage to 2 decimal places.

(b) If instead GBC were to offer investors an effective annual return of 5.7%, what price should they charge for this product? Give your answer to the nearest cent.

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