Question 1

A debt of $7,000 accumulated interest at 9.5% compounded quarterly for 15 months, after which the rate changed to 8.5% compounded semi-annually for the next six months. What was the total amount owed at the end of the entire 21-month period?

Accepted Answer

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Question 2

Jarmila borrowed $3,000, $3,500, and $4,000 from her grandmother on December 1 in each of three successive years at college. They agreed that interest would accumulate at the rate of 4% compounded semi-annually. Jarmila is to start repaying the loan on June 1 following the third loan. What consolidated amount will she owe at that time?

Accepted Answer

The answer of Jarmila borrowed $3,000, $3,500, and $4,000 from...

Question 3

For a given term of compound-interest GIC, the nominal interest rate with annual compounding is typically 0.125% higher than the rate with semi-annual compounding and 0.25% higher than the rate with monthly compounding. Suppose that the rates for 5-year GICs are 3.00%, 2.875%, and 2.75% for annual, semi-annual, and monthly compounding, respectively. How much more will an investor earn over 5 years on a $10,000 GIC at the most favourable rate than at the least favourable rate?

Accepted Answer

The answer of For a given term of compound-interest GIC,...

Question 4

Albert purchased Bonzo's car for $500 cash and a non-interest bearing promissory note for $2,000 payable in two years. How much money can Bonzo expect to receive for the note if he immediately sells it to Corleone Finance Company at a discount rate of 30% compounded monthly?

Accepted Answer

A)  $383 
B)  $2,616 
C)  $1,617 
D)  $1,400 
E)  $1,106

Question 5

A $4,000 obligation is to be repaid by three payments. The first payment is now, the second is 18 months from now, and the final payment is in 24 months. In addition, the second payment will be half the amount of the first, while the third payment will be twice as much as the first. Interest is 4.8% compounded quarterly. Using the financial functions on the calculator, determine the size of each payment.

Accepted Answer

A)  Payment #1 = $1218.24; Payment #2 = $609.12; Payment #3 = $2436.48 
B)  Payment #1 = $500; Payment #2 = $250; Payment #3 = $1,000 
C)  Payment #1 = $2520.50; Payment #2 = $1,260.25; Payment #3 = $5,041 
D)  Payment #1 = $3,300.75; Payment #2 = $1,650.38; Payment #3 = $6,601.50 
E)  Payment #1 = $875.50; Payment #2 = $437.75; Payment #3 = $1,751

Question 6

Debbie has two promissory notes payable to her. The first one will mature in five years at $42,371 and the second one will mature in eight years at $78,529. What amount can she expect to receive from the Lansky Finance Company if, one year from now, she sells both of the notes to them at a discount rate of 19% compounded annually?

Accepted Answer

A)  $37,283 
B)  $44,367 
C)  $78,154 
D)  $39,028 
E)  $57,413

Question 7

If a 30-year, $10,000 strip bond is issued at a yield rate of 5.75% compounded semi-annually, what is its issue price?

Accepted Answer

A)  $349 
B)  $978 
C)  $993 
D)  $1,869 
E)  $1,826

Question 8

Twenty-five years ago Sandy invested $3,000. Fifteen years ago she put another $2,000 into the investment. Over the 25 years, interest has accumulated at a rate of 6% compounded monthly. How much interest has she earned over the 25 years?

Accepted Answer

A)  $18,303 
B)  $6,567 
C)  $5,134 
D)  $11,567 
E)  $13,303

Question 9

Calculate the missing value:

Accepted Answer

The answer of Calculate the missing value:
...

Question 10

What amount today is equivalent to $10,000 four years ago, if money earned 5.5% compounded monthly over the last 4 years?

Accepted Answer

The answer of What amount today is equivalent to $10,000...

Question 11

Six-year-old Jerry's grandmother is going to invest $18,000 now to pay for the first two years of Jerry's college education. She plans to provide him with two equal payments. The first will be in 11 years and the second will be in 12 years. If the investment earns 9% compounded semi-annually what will be the size of the two payments?

Accepted Answer

A)  $13,765.75 
B)  $15,749.62 
C)  $18,499.77 
D)  $22,259.16 
E)  $24,745.53

Question 12

Four years after it was first issued at 6% compounded semi-annually, a 25-year, $10,000 strip bond was sold on the bond market at a price that would provide the purchaser with a yield rate of 4.8% compounded semi-annually. What was the selling price at that time?

Accepted Answer

A)  $2,281 
B)  $2,667 
C)  $2,890 
D)  $3,693 
E)  $3,736

Question 13

On the same date that the CIBC advertised rates of 2%, 2.5%, 3%, 3.25%, and 7% in successive years of its five-year compound-interest Escalating Rate GIC, it offered 2.75% compounded annually on its five-year fixed-rate GIC. How much more will a $10,000 investment be worth at maturity if the Escalating Rate GIC is chosen instead of the fixed-rate GIC?

Accepted Answer

The answer of On the same date that the CIBC...

Question 14

Mr. Dickson purchased a 7-year, $30,000 compound-interest GIC with funds in his RRSP. If the interest rate on the GIC is 4.25% compounded semi-annually, what is the GIC's maturity value?

Accepted Answer

The answer of Mr. Dickson purchased a 7-year, $30,000 compound-interest...

Question 15

Two payments of $7,500 each must be made three years and six years from now. If money can earn 8.4% compounded monthly, what single payment, four years from now, would be equivalent to the two scheduled payments?

Accepted Answer

A)  $13,218 
B)  $18,638 
C)  $15,501 
D)  $14,499 
E)  $22,034

Question 16

If the inflation rate for the next 10 years is 3% per year, what hourly rate of pay in 10 years will be equivalent to $15 per hour today?

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The answer of If the inflation rate for the next...

Question 17

Teresa has three financial obligations to the same person: $2,700 due in 1 year, $1,900 due in 1½ years, and $1,100 due in 3 years. She wishes to settle the obligations with a single payment in 2¼ years, when her inheritance will be released from her mother's estate. What amount should the creditor accept if money can earn 6% compounded quarterly?

Accepted Answer

The answer of Teresa has three financial obligations to the...

Question 18

Noori borrowed $5,000 for 4.5 years. For the first 2.5 years, the interest rate on the loan was 8.4% compounded monthly. Then the rate became 5.5% compounded semi-annually. What total amount was required to pay off the loan if no payments were made before the expiry of the 4.5-year term?

Accepted Answer

The answer of Noori borrowed $5,000 for 4.5 years. For...

Question 19

Are two equal payments of size x equivalent to a single payment of 2x made midway between the two scheduled payments? If not, is the equivalent payment larger or smaller than 2x? Explain.

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The answer of Are two equal payments of size x...

Question 20

A loan of $8,000 is to be repaid by three payments of $1,500 in one year, and two other payments in two and four years after the date of the loan. The second payment is to be twice that of the third payment. If interest is 4.8% compounded quarterly, what is the size of the last two payments?

Accepted Answer

The answer of A loan of $8,000 is to be...

Exam 8: Compound Interest: Future Value and Present Value