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10.S: Summary

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    Key Concepts Summary

    10.1: Application: Long-Term GICs (Keeping Your Money Safe When Investing)

    • The characteristics and calculations involved with an interest payout GIC
    • The characteristics and calculations involved with compound interest GICs
    • The characteristics and calculations involved with escalator GICs

    10.2: Application: Long-Term Promissory Notes (IOUs)

    • The sale of interest-bearing promissory notes
    • The sale of noninterest-bearing promissory notes

    10.3: Application: Savings Bonds (You Can Personally Finance Canada’s Debt!)

    • Key characteristics of savings bonds
    • The interest rates for savings bonds
    • Calculating interest amounts and maturity values for savings bonds

    10.4: Application: Strip Bonds (Buy Low, Sell High)

    • Characteristics of strip bonds
    • Calculating the present value or purchase price of a strip bond
    • Calculating the nominal yield on a strip bond

    10.5: Application: Inflation, Purchasing Power, and Rates of Change (Your Grandparents Used to Go to a Movie for a Quarter)

    • Applying the concepts of compound interest to rates of inflation
    • Applying the concepts of compound interest to purchasing power
    • Applying the concepts of compound interest to rates of change

    The Language of Business Mathematics

    Canada Premium Bond (CPB)

    A savings bond that is redeemable only during its anniversary month.

    Canada Savings Bond (CSB)

    A savings bond that is redeemable at any time.

    compound interest GIC

    A GIC that uses compound interest rates for which interest is periodically calculated and converted to the principal of the GIC for further compounding.

    compound interest savings bonds

    Called C-bonds, these bonds annually convert the interest on the savings bond to principal.

    deflation

    The overall downward price movement of products in an economy, which is measured by negative change in the consumer price index.

    escalator interest GIC

    A GIC that uses compound interest rates that usually remain constant during each of a series of time intervals, always rising stepwise throughout the term of the investment with any accrued interest being converted to principal.

    inflation

    The overall upward price movement of products in an economy, which is measured by positive change in the consumer price index.

    interest payout GIC

    A GIC where the interest is periodically paid out to the investor, but it is never added to the principal of the GIC. Because the interest does not actually compound, in essence the concepts of simple interest are used.

    regular interest savings bonds

    Called R-bonds, these bonds annually pay the interest to the owner of the bond and do not convert the interest to principal.

    savings bonds (SBs)

    Long-term financial instruments with 10-year maturities issued only by the Canadian federal government to finance the long-term national debt.

    strip bond

    A marketable bond that has been stripped of all interest payments.

    The Formulas You Need to Know

    Symbols Used

    \(I\) = Interest payment amount

    \(i\) = Periodic interest rate

    \(n\) = number of pieces of data or variables

    \(N\) = Number of compounding periods

    \(PPD\) = Purchasing power of a dollar

    \(PV\) = Principal or present value

    Formulas Introduced

    Formula 10.1 Periodic Interest Amount: \(I = PV × i\)

    Formula 10.2 Purchasing Power of a Dollar (Compound Interest Method): \(PPD=\dfrac{\$ 1}{(1+i)^{N}} \times 100\)

    Technology

    Calculator No new calculator functions were introduced in this chapter.

    Contributors and Attributions

    This page titled 10.S: Summary is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by Jean-Paul Olivier via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request.