Exam 8: Compound Interest: Future Value and Present Value

Adel borrowed $6,500, 2 ½ years ago. She made a $800 payment 18 months ago. Using the financial functions on the calculator, determine how much she has to pay now if interest is 6.2% compounded monthly?

Manuel deposits $35,000 into an investment account earning 3.9% interest compounded annually. The purpose of this deposit is for Manuel to withdraw $700 per month as an allowance during his 4 years of university. In addition, he wishes to have some money left in the account after the 4-year time period. Using the financial functions on the calculator, determine the amount of remaining after his education is completed.

If an investor has the choice between rates of 5.4% compounded quarterly and 5.5% compounded annually for a six-year GIC, which rate should be chosen?

The contract for a $4,000 loan at 9% compounded quarterly requires two payments. The first payment of $2,000 is required two years after the date of the loan. (It is applied to the balance owed after conversion of interest to principal every three months.) A second payment in the amount needed to pay off the loan is due one year later. What price would an investor pay for the contract six months after the date of the loan to earn 10% compounded semi-annually on the purchase price?

If the inflation rate for the next 10 years is 3.5% per year, what hourly rate of pay in 10 years will be equivalent to $15/hour today?

Pablo plans to pay off debt with payments of $1,600 one year from now, $1,800 in 18 months and $2,000 in 30 months. If interest is 8% compounded quarterly, determine the payment that will settle the obligations.

An investor has a choice of two investments, the first for 5.5% compounded daily, and the second for 5.65% pa. Which rate should the investor choose?

A $1,000 face value compound-interest series S114 Canada Savings Bond was redeemed on March 14, 2013. What amount did the bond's owner receive? (Obtain the issue date and the interest rates paid on the bond from Table 8.2)

A loan is to be repaid by $1,000 in one year and $1,500 in three years. The borrower has asked to repay $1,000 in two years and a final payment in three years. If money can earn 8% compounded quarterly, what is the size of the final payment?

A current study shows that the demand for widgets is expected to decrease by 3% per year over the next seven years. If production is now 450,000 units, how many units does the company expect to produce in seven years?

Calculate the maturity value:

How much interest would be earned on a 10-year $117,000 Guaranteed Investment Certificate that grows at 9% compounded monthly?

Leo's Furniture is offering a "houseful of furniture" for $7,777. Furthermore, if you make a down payment of $777 you can wait for 2½ years to pay the $7,000 balance. If Leo's Furniture immediately sells the $7,000 receivable contract to the Corleone Finance Group at a discount rate of 24% compounded monthly, how much money will Leo's actually receive for the "houseful of furniture"?

A pharmaceutical company had sales of $28,600,000 in the year just completed. Sales are expected to decline by 4% per year for the next three years until new drugs, now under development, receive regulatory approval. Then sales should grow at 8% per year for the next four years. What are the expected sales for the final year of the seven year period?

If the total interest earned on an investment at 6.6% compounded monthly for 3½ years was $1,683.90, what was the original investment?

Calculate the original principal:

On February 1 of 3 successive years, Roger contributed $3,000, $4,000, and $3500, respectively, to his RRSP. The funds in his plan earned 9% compounded monthly for the first year, 8.5% compounded quarterly for the second year, and 7.75% compounded semi-annually for the third year. What was the value of his RRSP 3 years after the first contribution?

If Smitty is able to earn 11% compounded semi-annually on his $750 investment, how much money will he have in 40 years?

A loan is to be repaid two equal payments of $3,000 in six months and 30 months. What single payment in two years would pay off the loan if interest is 6.3% compounded monthly?

Should we conclude that the owner of a strip bond earns nothing until the full face value is received at maturity? Explain.