Exam 8: Compound Interest: Future Value and Present Value

A city's population stood at 120,000 after 5 years of 3% annual growth. What was the population 5 years previously?

A loan contract called for a payment after two years of $1,500 plus interest (on this $1,500 only) at 8% compounded quarterly, and a second payment after four years of $2,500 plus interest (on this $2,500) at 8% compounded quarterly. What would you pay to purchase the contract 18 months after the contract date if you require a return of 10.5% compounded semi-annually?

Donnelly Excavating has received two offers on a used backhoe that Donnelly is advertising for sale. Offer 1 is for $10,000 down, $15,000 in six months, and $15,000 in 18 months. Offer 2 is for $8,000 down plus two $17,500 payments one and two years from now. What is the economic value of each offer today if money is worth 4.25% compounded semi-annually? Which offer should be accepted?

If the present value of $X due eight years from now is 0.5$X, what is the present value of $X due 16 years from now? Answer without using formula (8-2).

A 1995 study predicted that employment in base metal mining would decline by 3.5% per year for the next five years. What percentage of total base metal mining jobs was expected to be lost during the five-year period?

Three equal payments were made one, two, and three years after the date on which a $10,000 loan was granted at 10.5% compounded monthly. If the balance immediately after the third payment was $5,326.94, what was the amount of each payment?

Amanda borrowed $1,500, $3,500 and $5,000 at the beginning of each year. The rate of interest was at 4.8% compounded monthly. Using the financial functions on the calculator, determine the value that must be repaid at the end of year 3.

A P32 series of compound-interest Canada Premium Bonds guaranteed interest rates of 2.5%, 3%, 3.5%, 4.25%, and 5% in the first five successive years. The Step-Up version of compound-interest Series 2003 Ontario Savings Bonds was issued at about the same time with interest rates of 2.75%, 3.25%, 3.5%, 4%, and 4.25% in the first five successive years. For a $10,000 investment, which savings bonds will have the greater maturity value after five years? How much greater?

Larissa agreed to repay a loan in two years by making a payment of $2,471.84. If interest is 6.5% compounded semi-annually, how much did Larissa borrow?

For the 10-year period ended December 31, 2007, the Phillips, Hager & North (PH&N) Canadian Equity Fund had a compound annual return of 11.3% whereas the PH&N U.S. Equity Fund had a compound annual return (after converting to Canadian dollars) of 1.3%. How much more would an initial $1,000 investment have earned over the 10-year period in the Canadian Equity Fund than in the U.S. Equity Fund?

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

Seventeen years after it was first issued at 11% compounded semi-annually, a 30-year, $1,000 strip bond was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.4% compounded semi-annually. What was the selling price at that time?

Scotia Bank offers a 4-year rate raiser RRSP. The annual compound rates are 2.5%, 3.2%, 3.8% and 4.2%. Determine the average annual rate of interest earned during the four year period.

Dr. Sawicki obtained a variable-rate loan of $10,000. The lender required payment of at least $2,000 each year. After nine months the doctor paid $2500, and another nine months later she paid $3,000. What amount was owed on the loan after 2 years if the interest rate was 6.6% compounded monthly for the first year, and 7% compounded quarterly for the second year?

What amount 15 months ago is equivalent to $2,600, 1½ years from now? Assume money can earn 5.4% compounded monthly.

At the same time as compound-interest Canada Savings Bonds were being sold with guaranteed minimum annual rates of 5.25%, 6%, and 6.75% in the first 3 years of their 12-year term, a trust company offered 3-year "Bond-Beater" GICs paying 5.75%, 6.5%, and 7.25% compounded annually in the 3 successive years. If the CSBs earn their minimum interest rates, how much more will $4,000 earn over the 3 years if invested in the GIC?

Oswald has a five-year compound interest GIC. Its interest rate is 7.2% compounded monthly and its maturity value will be $76,243. How much interest will he have earned over the five-year term?

What price should be paid for a $5,000 face value strip bond with 19.5 years remaining to maturity if it is to yield the buyer 4.1% compounded semi-annually?

Kramer borrowed $6,000 from George at an interest rate of 6% compounded quarterly. The loan is to be repaid by three payments. A payment of $2,000 is due two years after the date of the loan. The second and third payments are to be of equal amounts and are to be paid three and five years after the date of the original loan. Calculate the size of the last two payments.

Mrs. Sandhu placed $11,500 in a 4-year compound-interest GIC earning 3.75% compounded monthly. What is the GIC's maturity value?