## Market*Smart* GICs - Guaranteed Minimum Return

Factors to be considered for the variable return payment calculation:

**Index Settlement Level (ISL)**: is the closing level for the Equity Index linked to your Deposit, for the Business Day preceding the Maturity Date
**Index Base Level (IBL)**: is the closing level for the Equity Index linked to your Deposit, on the Business Day following the Investment Date
- "Maximum Return" means the maximum return, expressed as a percentage rate per term, that we set for a Variable Return on the Investment Date
- "Minimum Return" means the minimum return, expressed as a percentage rate per term, that we set for a Variable Return on the Investment Date

Formula used to calculate your variable return payment:

**Principal x (ISL – IBL) / IBL**

To calculate your variable return payment, multiply the principal by the variable return. If the variable return is below the minimum return, adjust it upwards to the minimum return set out at the time of purchase. If the variable return is above the maximum return, adjust it downwards to the maximum return set at the time of purchase.

Calculation Sample

For example, let's say you invest $10,000 in a 5-year GIC with a minimum return of 5%, a maximum return of 25% and a Base Level of 1,000. If after five years, the Index Settlement Level is 1,400, then your variable return payment would be calculated as:

Index return = ((1,400 - 1,000) / 1,000) = 40%

This is above the maximum rate, so your variable return would be adjusted down to the maximum return set at the time of purchase of 25%
Variable return payment = $10,000 x 25% = $2,500. At maturity, you would receive your original principal of $10,000 plus the variable return payment of $2,500, for a total of $12,500.

Using this same example, if after five years, the Index Settlement Level drops to 865 instead, the index would have returned -13.5%. This is below the minimum rate set out at the time of purchase and your calculated variable return payment would be $10,000 x 5% = $500, and at maturity you would receive $10,500. If the index performs negatively or beneath the minimum return your variable return will always be at least at the minimum return and your principal will be fully guaranteed.

Again using this same example there is one other scenario that could arise. If the Index Settlement Level was at 1200, the index would have returned 20%. This is between the minimum and maximum returns, so no adjustment is necessary and this would be the return on your GIC. Your variable return payment would be $2,000 and at maturity you would receive $12,000.

## Market*Smart* GICs - Unlimited Return Potential

The calculations for your return are based on three factors:

**Settlement Level (SL)**: is based on the average month-end closing value of the index or fund for the 12 months prior to maturity.
**Base Level (BL)**: the index or fund value at the beginning of the GIC term.
**Participation Factor (PF)**: the percentage at which the GIC will participate in the returns of the index or fund; it is set at the time of purchase and depends on market conditions.

The following formula is used to calculate your variable return payment:

**Principal x (SL - BL) / BL x PF**

Calculation Sample

For example, let's say you invest $10,000 in a 3-year GIC with a Participation Factor of 60% and a Base Level of 1,000. If after three years, the Settlement Level is 1,300, then your variable return payment would be calculated as:

Variable return payment = $10,000 x ((1,300 - 1,000) / 1,000) x 60%

Variable return payment = $1,800 (or 18% compound annual rate of return)

At maturity, you would receive your original principal of $10,000 plus the variable return payment of $1,800, for a total of $11,800. The better the index performs, the higher the Settlement Level will rise and the higher your return will be.

Using this same example, if after three years, the Settlement Level drops to 865 instead, your calculated variable return payment would be -$810 x ($10,000 x [(865 - 1,000)/1,000] x 60%). In this scenario, your variable return would be set to zero. Therefore, if the index performs negatively and the Settlement Level decreases below the Base Level, you will not earn any return, but your principal will be fully guaranteed.

In addition to the Settlement Level, your variable return is also affected by the Participation Factor, which is set at the time of purchase by RBC and is dependent on market conditions. Within a non-registered account, the variable return payment is taxed as interest income.