Exam 9: Compound Interest: Further Topics and Applications

A $6,000, three-year promissory note bearing interest at 11% compounded semiannually was purchased 15 months into its term for $6,854.12. What monthly compounded discount rate was used in pricing the note?

At the end of 2009, the Industrial Alliance (IA) Group Dividends Fund had the best 10-year compound annual return of any Canadian diversified equity mutual fund. During the 10-year period, this fund invested primarily in the shares of large Canadian companies. The fund's annual returns in successive years from 2000 to 2009 inclusive were 33.5%, 9.2%, 2.2%, 25.8%, 17.9%, 27.9%, 19.7%, 6.3%, -26.0%, and 21.5%, respectively. For 3-year, 5-year, and 10-year periods ended December 31, 2009, what was the fund's equivalent annual compounded return?

What is the remaining time until the maturity date of a $10,000 strip bond if it is purchased for $4,011.33 to yield 6.4% compounded semiannually until maturity?

What rate of return in the second year of an investment is required to break even after a rate of return of -20% in the first year?

An oil company wants to drop the effective rate of interest on its credit card by 3%. If it currently charges a periodic rate of 1.7% per month, at what amount should it set the periodic rate?

Pat and Jaimie are twins. Pat will invest $2,500 on their 20^th birthday and the money will accumulate at 12% compounded annually until their 60^th birthday. Jamie will wait 10 more years, until they are 30 years old, and will then invest the same amount, $2,500. What annually compounded interest rate will Jamie need to achieve for the investment to catch up to Pat's when they are 60 years old?

If a $15,000 investment grew to $21,805 in 4½ years of quarterly compounding, what effective rate of return was the investment earning?

Your client wants to invest a $250,000 inheritance and grow it to $325,000. Rounded to the nearest month, how long will this take if the investment earns 7% compounded annually?

Which of the following rates would you prefer for a loan: 7.6% compounded quarterly, 7.5% compounded monthly, or 7.7% compounded semiannually?

An investor purchased preferred shares on the Toronto Stock Exchange for $15.00. The shares pay a semi-annual dividend of $1.12. Six months later, the shares were trading at $14.50. What was the rate of total return for the six-month period?

You are offered a loan at a rate of 9% compounded monthly. Below what nominal rate of interest would you choose semiannual compounding instead?

Calculate the missing interest rate (to the nearest 0.01%)

A company reports that its sales have grown 3% per quarter for the last eight fiscal quarters. What annual growth rate has the company been experiencing for the last two years?

Does the combined effect of a 20% increase followed by a 20% decrease differ from the combined effect of a 20% decrease followed by a 20% increase? Justify your answer.

Calculate the equivalent interest rate (to the nearest 0.01%)

The population of Canada grew from 24,343,000 in 1981 to 34,880,500 in 2012. What was the overall compound annual rate of growth in our population during the period?

A $5000 strip bond was purchased for $3054.29, providing the investor with a return of 3.9% compounded semiannually until the maturity date. To the nearest day, how long before the maturity date was the bond purchased?

Calculate the term of the loan or investment:

A trust company pays 5.375% compounded annually on its 5-year GICs. What semiannually compounded nominal interest rate would provide the same maturity value?

Smoking among young adults has decreased by 34% over the past 16 years. Determine the average annual rate of decline.