Question 1

Taylor deposits $3,500 at the end of year 1, $4,000 at the end of year 3 and $2,500 at the end of year 5. If interest is 6.2% compounded monthly, determine the value at the end of year 7.

Accepted Answer

A)  $11,504.67 
B)  $11,909.03 
C)  $12,504.67 
D)  $13024.06 
E)  $13,504.67

Question 2

Jack invested $10,000 at 10% compounded annually for 35 years. Jill also invested $10,000 for 35 years but her interest rate was 11% compounded annually. How much MORE interest did Jill earn as compared to Jack?

Accepted Answer

A)  $14,166 
B)  $55,632 
C)  $92,418 
D)  $104,724 
E)  $189,627

Question 3

Given a periodic interest rate of 0.9375%, calculate the nominal interest rate if interest is compounded quarterly.

Accepted Answer

The answer of Given a periodic interest rate of 0.9375%,...

Question 4

The BMO Bank of Montreal advertised rates of 1.8%, 2.25%, 2.6%, 3%, and 3.25% for the five successive years of its five-year compound-interest Rate Optimizer GIC. At the same time, the bank was offering fixed-rate five-year compound-interest GICs yielding 2.75% compounded annually. What total interest would be earned during the five-year term on a $5,000 investment in each type of GIC?

Accepted Answer

The answer of The BMO Bank of Montreal advertised rates...

Question 5

In 2005 the number of workers in the forest industry was forecast to decline by 3% per year, reaching 80,000 in 2015. How many were employed in the industry in 2005?

Accepted Answer

The answer of In 2005 the number of workers in...

Question 6

Twenty years ago Freddie invested $2,000. For the first 10 years he earned 13% compounded semi-annually. For the next 10 years he earned 8% compounded quarterly. What was the value of the investment now, at the end of the 20 years?

Accepted Answer

A)  $5,927 
B)  $9,185 
C)  $17,292 
D)  $14,732 
E)  $15,561

Question 7

Ross has just been notified that the combined principal and interest on an amount that he borrowed 27 months ago at 11% compounded quarterly is now $2297.78. How much of this amount is principal and how much is interest?

Accepted Answer

The answer of Ross has just been notified that the...

Question 8

A $1000.00 face value Series 114 compound interest CSB was redeemed on August 8, 2013. What was its redemption value?

Accepted Answer

The answer of A $1000.00 face value Series 114 compound...

Question 9

An $18,000 obligation is to be repaid by two payments. The first payment is six months from now, while the second is 18 months from now. In addition, the second payment will be half the amount of the first. Interest is 5.15% compounded semi-annually. Using the financial functions on the calculator, determine the size of each payment.

Accepted Answer

A)  Payment #1 = $12,516; Payment #2 = $6,258 
B)  Payment #1 = $10,440; Payment #2 = $5,220 
C)  Payment #1 = $11,000; Payment #2 = $5,500 
D)  Payment #1 = $12,000; Payment #2 = $6,000 
E)  Payment #1 = $6,000; Payment #2 = $18,000

Question 10

A $6,500 loan at 11.25% compounded monthly is to be repaid by three equal payments due 3, 6, and 12 months after the date of the loan. Calculate the size of each payment.

Accepted Answer

The answer of A $6,500 loan at 11.25% compounded monthly...

Question 11

A trust company offers 3-year compound-interest GICs earning 4.8% compounded monthly or 4.9% compounded semi-annually. Which rate should an investor choose?

Accepted Answer

The answer of A trust company offers 3-year compound-interest GICs...

Question 12

A $1,000 face value compound-interest series S114 Canada Savings Bond was redeemed on March 8, 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)

Accepted Answer

A)  $1,567.23 
B)  $1,037.62 
C)  $1,073.26 
D)  $1, 053.89

Question 13

Mateo deposits $5,000 at the end of years 2, 4 and 6. If interest is 8.2% compounded annually, determine the value at the end of year 6.

Accepted Answer

A)  $18,706.59 
B)  $19,706.59 
C)  $20,706.59 
D)  $21,706.59 
E)  $22,706.59

Question 14

How much more will an investment of $10,000 earning 8% compounded annually be worth after 15 years than after 10 years? Calculate the difference in dollars and as a percentage of the smaller maturity value.

Accepted Answer

The answer of How much more will an investment of...

Question 15

What would be the most convincing way to demonstrate that the replacement stream in Example 8.6A is economically equivalent to the given stream?

Accepted Answer

The answer of What would be the most convincing way...

Question 16

By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer.
a) 12.0% compounded monthly.
b) 12.1% compounded quarterly.
c) 12.2% compounded semi-annually.
d) 12.3% compounded annually.

Accepted Answer

The answer of By calculating the maturity value of $100...

Question 17

If an investment doubles in nine years, how long will it take to quadruple (at the same rate of return)? (This problem does not require any detailed calculations.)

Accepted Answer

The answer of If an investment doubles in nine years,...

Question 18

The scheduled payment stream consists of $5,000 due today and $10,000 due in five years. It is proposed to replace this stream by an economically equivalent stream comprised of three equal payments due one, three, and five years from now. Determine the size of each payment if money is worth 5% compounded annually.

Accepted Answer

The answer of The scheduled payment stream consists of $5,000...

Question 19

Interest is 3.75% compounded monthly. If you want to have $4,000 in an account in three years, how much should you deposit to that account today?

Accepted Answer

The answer of Interest is 3.75% compounded monthly. If you...

Question 20

Doris is retiring today and she plans to buy a new car for $25,000 seven years from now and a second new car for $40,000 seventeen years from now. How much "new car money" should she set aside now if she can expect to earn 8½% compounded annually on her savings?

Accepted Answer

A)  $42,515 
B)  $31,879 
C)  $24,421 
D)  $24,118 
E)  $16,590

Exam 8: Compound Interest: Future Value and Present Value