Question 1

Your client will retire this year. Currently she has $560,000 in accumulated capital. She wants to invest this capital to provide equal payments at the end of each year for 20 years, at which time the capital will be fully depleted. If her capital earns 7.5% compounded annually, what annual payment will she receive? Taken from CIFP course materials.

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Question 2

A life insurance company will sell a 20-year annuity paying $1,600 at the end of each month for $175,000. What annual compounded nominal rate of interest will the annuitant earn?

Accepted Answer

A)  9.401% 
B)  8.735% 
C)  9.226% 
D)  9.335% 
E)  9.297%

Question 3

Calculate the periodic payment for the following ordinary annuity.

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Question 4

Henrick can buy a rural property from a family member for $700,000 with terms of $100,000 down and the balance payable over 20 years by quarterly payments including interest at 8% compounded annually. What will be the size of the payments? How much interest will Henrick pay over the life of the loan?

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Question 5

David and Hana plan to purchase a house in 5 years' time. David already has $20,000 that he invested in an account two years ago that is earning 0.308% interest compounded monthly. Hanna plans to contribute $675 per month for the next 5 years into her account. Determine what the nominal rate of interest (based on monthly compounding) that Hanna's investment should earn if their combined savings is to total $70,000.

Accepted Answer

A)  3.07% 
B)  4.22% 
C)  3.68% 
D)  4.04% 
E)  4.59%

Question 6

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.

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Question 7

If $100,000 will purchase a 20-year annuity paying $830 at the end of each month, what monthly compounded nominal rate and effective rate of interest will the invested funds in the annuity earn?

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Question 8

Calculate the term, expressed in years and months, of the following ordinary annuity.

Accepted Answer

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Question 9

The Adamson household is considering paying off a $350,000 mortgage with either monthly payments over 25 years, or weekly payments made at the start of each week over a 25 years. If interest is 7.2% compounded semi-annually, determine how much interest would be saved with the weekly payments made at the beginning of the week.

Accepted Answer

A)  $1,695.93 
B)  $1,840.53 
C)  $2,005.83 
D)  $2,348.72 
E)  $2,840.43

Question 10

What monthly payment would be required to pay off a loan of $3,000 at 7.25% compounded monthly over three years?

Accepted Answer

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Question 11

What annual deposit should Martina make to her RRSP at the end of every year if the funds earn 12% compounded monthly and her goal is to accumulate $1,000,000 at the end of 25 years?

Accepted Answer

A)  $4,000 
B)  $6,750 
C)  $7,500 
D)  $12,750 
E)  $13,358

Question 12

Calculate the periodic payment for the following ordinary annuity.

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Question 13

What semi-annual payment would be required to pay off a loan of $5,000 at 8.5% compounded semi-annually over five years?

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Question 14

If a single sum of $25,000 is invested at age 25 at 13% compounded annually, what amount will the investor be able to withdraw from the savings, at the end of every month for 20 years, beginning at age 65? At age 65 the investor will put his money into a safer investment that earns only 6% compounded monthly.

Accepted Answer

A)  $13,831 
B)  $18,567 
C)  $23,782 
D)  $41,009 
E)  $7,185

Question 15

Determine how much faster monthly payments of $248.69 will accumulate to $10,000 if interest is at 7.2% compounded monthly, compared to monthly payments of $182.61 at 6.6% interest compounded monthly.

Accepted Answer

A)  6 months 
B)  8 months 
C)  10 months 
D)  12 months 
E)  14 months

Question 16

A loan of $25,000,000 is to be repaid by annual year-end payments of $3,000,000 for 30 years. What is the effective interest rate on this loan?

Accepted Answer

A)  9.746% 
B)  43.62% 
C)  3.600% 
D)  11.548% 
E)  21.598%

Question 17

Advance Leasing calculates the monthly payments on its three-year leases on the basis of recovering the capital cost of the leased equipment and earning a 9.3% compounded monthly rate of return on its capital investment. What will be the monthly lease payment on equipment that costs $8500?

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Question 18

Calculate the periodic payment for the following ordinary annuity.

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Question 19

Calculate the periodic payment for the following ordinary annuity, using the financial calculator.

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Question 20

Aden is scheduled to make a lump payment of $25,000, 11 months from now, to complete a real estate transaction. What end-of-month payments for the next 11 months should the vendor be willing to accept instead of the lump payment if he can invest the funds at 5.4% compounded monthly?

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

A life insurance company will sell a 20-year annuity paying $1,600 at the end of each month for $175,000. What annual compounded nominal rate of interest will the annuitant earn?

Calculate the periodic payment for the following ordinary 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.

If $100,000 will purchase a 20-year annuity paying $830 at the end of each month, what monthly compounded nominal rate and effective rate of interest will the invested funds in the annuity earn?

Calculate the term, expressed in years and months, of the following ordinary annuity.

What monthly payment would be required to pay off a loan of $3,000 at 7.25% compounded monthly over three years?

What annual deposit should Martina make to her RRSP at the end of every year if the funds earn 12% compounded monthly and her goal is to accumulate $1,000,000 at the end of 25 years?

Calculate the periodic payment for the following ordinary annuity.

What semi-annual payment would be required to pay off a loan of $5,000 at 8.5% compounded semi-annually over five years?

Determine how much faster monthly payments of $248.69 will accumulate to $10,000 if interest is at 7.2% compounded monthly, compared to monthly payments of $182.61 at 6.6% interest compounded monthly.

A loan of $25,000,000 is to be repaid by annual year-end payments of $3,000,000 for 30 years. What is the effective interest rate on this loan?

Advance Leasing calculates the monthly payments on its three-year leases on the basis of recovering the capital cost of the leased equipment and earning a 9.3% compounded monthly rate of return on its capital investment. What will be the monthly lease payment on equipment that costs $8500?

Calculate the periodic payment for the following ordinary annuity.

Calculate the periodic payment for the following ordinary annuity, using the financial calculator.

Aden is scheduled to make a lump payment of $25,000, 11 months from now, to complete a real estate transaction. What end-of-month payments for the next 11 months should the vendor be willing to accept instead of the lump payment if he can invest the funds at 5.4% compounded monthly?