Question 1

Today, Barry reached his 50th birthday and he has $70,000 in his retirement fund. His goal is to have $500,000 on his 65th birthday. He can expect his investments to earn 13% compounded semi-annually. How much will he have to invest at the end of every six months for the next 15 years in order to reach his goal?

Accepted Answer

A)  $4,978.30 
B)  $1,722.84 
C)  $428.30 
D)  $926.14 
E)  $2,388.89

Question 2

The interest rate on a four-year $10,000 loan to purchase a car is 7.2% compounded monthly. What is the amount of the monthly payment? Reference: CIFP course on Personal Financial Planning.

Accepted Answer

The answer of The interest rate on a four-year $10,000...

Question 3

What duration of annuity paying $5,000 at the end of every quarter can be purchased with $200,000 if the invested funds earn 5.5% compounded semi-annually?

Accepted Answer

The answer of What duration of annuity paying $5,000 at...

Question 4

Heather's investments will earn 11% compounded annually and, in 30 years, she must have $645,000. For the next 20 years she can make year-end contributions of $10,000. She will not be able to make any contributions after 20 years from now. She wants to know if she has to start the $10,000 annual contributions now in order to reach her goal. If not, how many years can she wait before starting the $10,000 annual contributions?

Accepted Answer

A)  She must start now. 
B)  She can wait for 4 years. 
C)  She can wait for 8 years. 
D)  She can wait for 12 years. 
E)  She can wait for 16 years.

Question 5

A finance company paid a furniture retailer $1050 for a conditional sale contract requiring 12 end-of-month payments of $100. What effective rate of return will the finance company realize on the purchase?

Accepted Answer

The answer of A finance company paid a furniture retailer...

Question 6

If $400,000 accumulated in an RRSP is used to purchase an annuity earning 3.9% compounded monthly and paying $3,500 at the end of each month, what will be the term of the annuity?

Accepted Answer

The answer of If $400,000 accumulated in an RRSP is...

Question 7

Calculate the nominal and effective rate of interest for the following ordinary annuity. Determine the nominal interest rate whose compounding interval equals the payment interval.

Accepted Answer

The answer of Calculate the nominal and effective rate of...

Question 8

MaryAnne is taking out a loan of $70,000 at 8% compounded semi-annually. Calculate the monthly payments that will reduce her balance owing to $30,000 in five years.

Accepted Answer

A)  $2,968 
B)  $1,005 
C)  $809 
D)  $669 
E)  $666

Question 9

Cliff has $25,000 in his savings account now. He wants to accumulate another $25,000 within the next five years, so that he has a total of $50,000 for a down payment on a house. If his account pays 4.75% compounded quarterly, how much should Cliff deposit to his account monthly to reach his goal?

Accepted Answer

The answer of Cliff has $25,000 in his savings account...

Question 10

A life insurance company advertises that $50,000 will purchase a 20-year annuity paying $402.80 at the end of each month. What effective rate of return does the annuity investment earn?

Accepted Answer

A)  6.15% 
B)  6.92% 
C)  7.76% 
D)  7.18% 
E)  7.50%

Question 11

Vince has $35,000 to purchase an annuity that will provide him with equal payments at the end of every three months for the next six years. If the funds earn 8% compounded quarterly, what is the size of the quarterly payments he will receive?

Accepted Answer

A)  $2,335 
B)  $1,850 
C)  $3,734 
D)  $3,324 
E)  $7,571

Question 12

Find the nominal and effective rate of interest for the following ordinary annuity. Determine the nominal interest rate whose compounding interval equals the payment interval.

Accepted Answer

The answer of Find the nominal and effective rate of...

Question 13

What annually compounded rate of return must Rachel earn in her RRSP in order for month-end contributions of $450 to accumulate to $750,000 in 25 years?

Accepted Answer

A)  12.26% 
B)  9.43% 
C)  10.71% 
D)  11.32% 
E)  11.93%

Question 14

Ray bought living room furniture at a local department store. The cost of the furniture was $4,000 including taxes. Ray is making monthly payments of $155 per month for three years. What rate of interest compounded monthly is Ray paying? What amount of interest will Ray pay over the three years?

Accepted Answer

The answer of Ray bought living room furniture at a...

Question 15

Calculate the nominal and effective rate of interest for the following ordinary annuity. Determine the nominal interest rate whose compounding interval equals the payment interval.

Accepted Answer

The answer of Calculate the nominal and effective rate of...

Question 16

Calculate the periodic payment for the following ordinary annuity.

Accepted Answer

The answer of Calculate the periodic payment for the following...

Question 17

Corey has $50,000 deposited in an account earning 6.2% compounded monthly. He plans to withdraw $2,000 per month for two years. Afterwards, he plans to replenish his account by contributing $3,000 per quarter to bring his investment back to the original $50,000. Determine how many payments will be needed for the quarterly payments.

Accepted Answer

A)  15 
B)  14 
C)  13 
D)  17 
E)  11

Question 18

Vijay purchased a Government of Nova Scotia bond for $1,050. The bond will pay $35 interest to Vijay at the end of every six months until it matures in seven years. On the maturity date the bond will pay back its $1,000 face value (as well as the interest payment due on that date.) What semi-annually compounded rate of return will Vijay earn during the seven years?

Accepted Answer

The answer of Vijay purchased a Government of Nova Scotia...

Question 19

A life insurance company advertises that $75,000 will purchase a 25-year annuity paying $456.10 at the end of each month. What monthly compounded nominal rate of return does the annuity investment earn?

Accepted Answer

A)  5.4% 
B)  6.2% 
C)  5.7% 
D)  5.6% 
E)  4.5%

Question 20

What monthly compounded nominal rate of return must Rachel earn in her RRSP in order for month-end contributions of $600 to accumulate to $750,000 in 25 years?

Accepted Answer

A)  8.04% 
B)  9.65% 
C)  10.09% 
D)  11.48% 
E)  13.50%

Exam 11: Annuities: Periodic Payment, Number of Payments, and Interest Rate

The interest rate on a four-year $10,000 loan to purchase a car is 7.2% compounded monthly. What is the amount of the monthly payment? Reference: CIFP course on Personal Financial Planning.

What duration of annuity paying $5,000 at the end of every quarter can be purchased with $200,000 if the invested funds earn 5.5% compounded semi-annually?

A finance company paid a furniture retailer $1050 for a conditional sale contract requiring 12 end-of-month payments of $100. What effective rate of return will the finance company realize on the purchase?

If $400,000 accumulated in an RRSP is used to purchase an annuity earning 3.9% compounded monthly and paying $3,500 at the end of each month, what will be the term of the annuity?

Calculate the nominal and effective rate of interest for the following ordinary annuity. Determine the nominal interest rate whose compounding interval equals the payment interval.

MaryAnne is taking out a loan of $70,000 at 8% compounded semi-annually. Calculate the monthly payments that will reduce her balance owing to $30,000 in five years.

Cliff has $25,000 in his savings account now. He wants to accumulate another $25,000 within the next five years, so that he has a total of $50,000 for a down payment on a house. If his account pays 4.75% compounded quarterly, how much should Cliff deposit to his account monthly to reach his goal?

A life insurance company advertises that $50,000 will purchase a 20-year annuity paying $402.80 at the end of each month. What effective rate of return does the annuity investment earn?

Vince has $35,000 to purchase an annuity that will provide him with equal payments at the end of every three months for the next six years. If the funds earn 8% compounded quarterly, what is the size of the quarterly payments he will receive?

Find the nominal and effective rate of interest for the following ordinary annuity. Determine the nominal interest rate whose compounding interval equals the payment interval.

What annually compounded rate of return must Rachel earn in her RRSP in order for month-end contributions of $450 to accumulate to $750,000 in 25 years?

Ray bought living room furniture at a local department store. The cost of the furniture was $4,000 including taxes. Ray is making monthly payments of $155 per month for three years. What rate of interest compounded monthly is Ray paying? What amount of interest will Ray pay over the three years?

Calculate the nominal and effective rate of interest for the following ordinary annuity. Determine the nominal interest rate whose compounding interval equals the payment interval.

Calculate the periodic payment for the following ordinary annuity.

A life insurance company advertises that $75,000 will purchase a 25-year annuity paying $456.10 at the end of each month. What monthly compounded nominal rate of return does the annuity investment earn?

What monthly compounded nominal rate of return must Rachel earn in her RRSP in order for month-end contributions of $600 to accumulate to $750,000 in 25 years?