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What is the ggap effect

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You deposit US$ 10 000 annually into a life insurance fund for the next 10 years, after which time you plan to retire

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a) If the deposits are made at the beginning of the year and earn an interest rate of 8 percent, what will be the amount of retirement funds at the end of the year 10?

b) Instead of a lump sum, you wish to receive annuities for the next 20 years (years 11 through 30) What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 8 percent during the distribution period.

c) Repeat parts (a) and (b) above assuming earning rates of 7 percent and 9 percent during the deposit period and earning rates of 7 percent and 9 percent during the distribution period. During which  period does the change in the earning rate have the greatest impact?

What is the GGAP effect? According to the GGAP effect, what is the relation between changes in interest rates and changes in net interest income when CGAP is Positive and when CGAP is negative?

Reference no: EM131936514

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