Exam 8: Compound Interest: Future Value and Present Value

What periodic payment will an investor receive from a 10-year, $250,000 annual payment GIC earning a nominal rate of 5.88% compounded annually?

Interest rates were at historical highs in the early 1980s. In August of 1981, you could earn 17.5% compounded annually on a five-year term deposit with a Canadian bank. Since then, the interest rate offered on five-year term deposits dropped to a low of 1.1% compounded annually in June of 2013. On a $10,000 deposit for a term of five years, how much more would you have earned at the historical high interest rate than at the more recent low rate?

Superlotto offers a choice of $1,000 per week for 25 years or a lump sum payment of $720,000 now. If interest is 5.2% compounded quarterly, determine which option should be chosen, and the economic difference between the two alternatives.

Calculate the missing value:

A 30-year, $10,000 strip bond was originally issued at 5% compounded semi-annually. Ten years later the original purchaser sold the bond at the prevailing market rate at that time which was 7% compounded semi-annually. How much profit did the original purchaser earn over the 10 years?

Andy borrowed money four years ago at 13.2 % compounded monthly. He now owes a total of $13,743. How much of this is interest?

A four-year promissory note with a face value of $2,000, bearing interest at 6% compounded quarterly, was sold 1 ½ years after its issue date to yield the buyer 8% compounded monthly. What amount did the buyer pay for the note?

If the rate of inflation is expected to be 2.75% per year for the next five years, what hourly rate would a student earning $10 per hour today have to make in five years in order to have the same purchasing power?

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.

How much money would have to be invested today, at 9% compounded monthly in order to have $40,000 in seven years?

Your client has a choice of either receiving $5,000 two years from now or receiving a lump payment today. If your client can earn 5.4% compounded semi-annually, what amount received today is equivalent to $5,000 in two years? (Taken from CIFP course materials)

Today, in Brazil, there are 462,966 people in prison. The prison population there has been decreasing at a rate of 1.9% per year for the last 10 years. How many prisoners were there in Brazil 10 years ago?

Calculate the original principal:

Isaac borrowed $3,000 at 10.5% compounded quarterly 3½ years ago. One year ago he made a payment of $1,200. What amount will extinguish the loan today?

What is the maturity value of a $3,500 loan for 15 months at 12% compounded quarterly?

What single payment 1 year from now would be equivalent to $2500 due in 3 months, and another $2,500 due in 2 years? Money is worth 7% compounded quarterly.

Murphy's annual income has increased by 10% per year for the last 8 years. If Murphy's annual income is now $72,596, what was it 8 years ago?

During its January sale, Furniture City is offering terms of 25% down with no further payments and no interest charges for 6 months when the balance is due. Furniture City sells the conditional sale contracts from these credit sales to a finance company. The finance company discounts the contracts to yield 18% compounded monthly. What cash amount should Furniture City accept on a $1,595 item in order to end up in the same financial position as if the item were sold under the terms of the January sale?

Scheduled payments of $3,000 due today and $2,000 due in 15 months are to be replaced by two payments-$1,500 due in 15 months and a second payment of undetermined size due in 24 months. What must the second payment be for the two streams to be economically equivalent? Assume that money can earn 6% compounded quarterly.

A $1,000 investment is made today. Calculate its maturity values for the six combinations of terms and annually compounded interest rates in the following table.