Exam 8: Compound Interest: Future Value and Present Value

The number of people working in service industries in British Columbia has been growing at a rate of 4% per year for eight years. Today there are 1.86 million service workers in B.C. How many were there five years ago?

Michelle has just received an inheritance from her grandfather's estate. She will be entering college in 3½ years, and wants to immediately purchase three compound-interest investment certificates having the following maturity values and dates: $4,000 at the beginning of her first academic year, $5,000 at the start of her second year, and $6,000 at the beginning of her third year. She can obtain interest rates of 5% compounded semi-annually for any terms between 3 and 5 years, and 5.6% compounded quarterly for terms between 5 and 7 years. What principal amount should she invest in each certificate?

Sharon has received an offer to purchase her bakery. The first offer is for $60,000 now along with two payments of $25,000 at the end of each year for two years. The second offer is for $30,000 now, no payment in year 1 and $45,000 in years 2 and three. If interest is calculated at 4.2% compounded monthly, determine whether the first offer is the better alternative, and by how much.

You owe $6,000 payable three years from now. What alternative amount should your creditor be willing to accept today if she can earn 2.1% compounded monthly on a low-risk investment?

A $25,000 loan at 9% compounded monthly is to be repaid by two equal payments due 1.5 years and 2.5 years after the date of the loan. What is the size of each payment?

Calculate the present value of a payment of $27,500 payable in 10 years if money is worth 9% compounded semi-annually.

Stan purchased a $15,000 compound-interest Series S122 Canada Savings Bond on January 1, 2010. The interest rate in the first year was 0.40% and in the second year was 0.65%. What interest did he receive when he redeemed the CSB on November 1, 2012?

Accurate Accounting obtained a private loan of $25,000 for five years. No payments were required, but the loan accrued interest at the rate of 3% compounded monthly for the first 2½ years and then at 8.25% compounded semi-annually for the remainder of the term. What total amount was required to pay off the loan?

Boris borrowed $500 five years ago. The interest rate on the loan was 9% compounded monthly for the first 27 months and 6% compounded quarterly for the rest of the time. How much does he owe now?

What principal earning 16% compounded quarterly will grow to $8,500 after six years and three months?

Nancy deposits $22,000 in an investment account earning 4.2% interest annually. In addition, she plans on withdrawing $4,000, $6,000 and $8,000 over a three-year period. Using the financial functions on the calculator, determine how much Nancy will have remaining at the end of year 3.

A $2,300 payment due 1½ years ago has not been paid. If money earns 6.25% compounded semi-annually, what amount in two years from now would be the economic equivalent to the missed payment during the intervening time?

A $1,000 face value strip bond has 22 years remaining until maturity. What is its price if the market rate of return on such bonds is 6.5% compounded semi-annually?

A four year $8,000 promissory note bearing interest at 6.6% compounded monthly was discounted 21 months after issue to yield 4.8% compounded quarterly. What were the proceeds from the sale of the note?

Sam borrowed $2,000 at 5.5% compounded quarterly. After one year, he paid $1,000 towards the outstanding balance. How much will Sam owe after two years?

A four-year $7,000 promissory note bearing interest at 10.5% compounded monthly was discounted 18 months after issue to yield 9.5% compounded quarterly. What were the proceeds from the sale of the note?

Megan borrowed $1,900 3½ years ago at 7% compounded semi-annually. Two years ago she made a payment of $1,000. What amount is required today to pay off the remaining principal and the accrued interest?

What will be the maturity value of $800 invested at 3.75% compounded quarterly after five years?

Four years ago John borrowed $3,000 from Arlette. The principal with interest at 10% compounded semi-annually is to be repaid six years from the date of the loan. Fifteen months ago, John borrowed another $1,500 for 3½ years at 9% compounded quarterly. John is now proposing to settle both debts with two equal payments to be made 2 and 3½ years from now. What should the payments be if money now earns 8% compounded quarterly?

The process of discounting is the opposite of doing what?