Question 1

What is the maturity value of a $12,000 loan for 18 months at 5.2% compounded quarterly? How much interest is charged on the loan?

Accepted Answer

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Question 2

A bank offers a five-year escalating rate GIC, paying 2.5%, 2.75%, 2.85%, 3%, and 3.25% respectively, and compounded at the end of each year. How much interest will a $1,000 GIC earn?

Accepted Answer

The answer of A bank offers a five-year escalating rate...

Question 3

Maynard Appliances is holding a "Fifty-Fifty Sale." Major appliances may be purchased for nothing down and no interest to pay if the customer pays 50% of the purchase price in 6 months and the remaining 50% in 12 months. Maynard then sells the conditional sale contracts at a discount to Consumers Finance Co. What will the finance company pay Maynard for a conditional sale contract in the amount of $1,085 if it requires a return of 14% compounded quarterly?

Accepted Answer

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Question 4

A loan is to be repaid two equal payments of $2,000 in one and three years. What single payment today would pay off the loan at 6.5% compounded quarterly?

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Question 5

Calculate the missing value:

Accepted Answer

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...

Question 6

Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investment 1 earns 15% compounded annually, and investment 2 earns 10% compounded annually?

Accepted Answer

A)  Investment 1 is steeper and the graph is growing at a faster rate. 
B)  Investment 2 is steeper and the graph is growing at a faster rate. 
C)  Investment 1 is steeper and the graph is growing at a slower rate. 
D)  Investment 2 is steeper and the graph is growing at a slower rate. 
E)  The two graphs look the same as they are both compounding interest.

Question 7

If an investor has the choice between rates of 5.5% compounded semi-annually and 5.6% compounded annually for a six-year GIC, which rate should be chosen?

Accepted Answer

The answer of If an investor has the choice between...

Question 8

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?

Accepted Answer

A)  $$441,889 
B)  $$539,731 
C)  $299,057 
D)  $752,198 
E)  $135,067

Question 9

Three equal payments were made 2, 4, and 6 years after the date on which a $9,000 loan was granted at 10% compounded quarterly. If the balance immediately after the third payment was $5,169.81, what was the amount of each payment?

Accepted Answer

The answer of Three equal payments were made 2, 4,...

Question 10

Miquel was supposed to make three payments of $2,000 each-the first one year ago, the second one year from now, and the third three years from now. He missed the first payment and proposes to pay $3,000 today and a second amount in two years. If money can earn 4.5% compounded semi-annually, what must the second payment be to make the proposed payments equivalent to the scheduled payments?

Accepted Answer

The answer of Miquel was supposed to make three payments...

Question 11

If you deposit $2,500 into an investment that grows at 13.2% compounded monthly, what will its value be in 17.5 years?

Accepted Answer

A)  $24,870 
B)  $57,750 
C)  $21,890 
D)  $48,901 
E)  $16,211

Question 12

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.

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Question 13

Mrs. Vandenberg has just deposited $5,000 in each of three savings plans for her grandchildren. They will have access to the accumulated funds on their 19^th birthdays. Their current ages are 12 years, 7 months (Donna); 10 years, 3 months (Tim); and 7 years, 11 months (Gary). If the plans earn 8% compounded monthly, what amount will each grandchild receive at age 19?

Accepted Answer

The answer of Mrs. Vandenberg has just deposited $5,000 in...

Question 14

Bones McGoo weighs 218 kilograms. His goal is to decrease his weight by 5% each year for 15 years. What will he weigh in 15 years if he achieves his goal?

Accepted Answer

A)  101 kg. 
B)  54.5 kg. 
C)  143 kg. 
D)  107.4 kg. 
E)  126.1 kg.

Question 15

To satisfy more stringent restrictions on toxic waste discharge, a pulp mill will have to reduce toxic wastes by 10% from the previous year's level every year for the next five years. What fraction is the target level of the current discharge level?

Accepted Answer

The answer of To satisfy more stringent restrictions on toxic...

Question 16

Calculate the maturity value of $18,559 after 7.5 years at 9% compounded quarterly.

Accepted Answer

A)  $36,179 
B)  $31,086 
C)  $32,000 
D)  $53,776 
E)  $29,000

Question 17

What regular interest payment will Grandmamma receive from a seven-year, $1,750,000 monthly payment GIC earning a nominal rate of 5.4% compounded monthly?

Accepted Answer

A)  $30,378 
B)  $21,767 
C)  $9,544 
D)  $7,875 
E)  $6,450

Question 18

If Murphy puts $45,000 into an investment that earns 12% compounded monthly, and after three years he withdraws $30,000, how much money will the investment be worth seven years after the withdrawal?

Accepted Answer

A)  $79,316 
B)  $49,506 
C)  $92,142 
D)  $69,202 
E)  $118,517

Question 19

Why does $100 due one year from now have less economic value than $100 has today? What do you need to know before you can determine the difference between the economic values of the two payments?

Accepted Answer

The answer of Why does $100 due one year from...

Question 20

Peggy has never made any payments on a 5-year-old loan from her mother at 6% compounded annually. The total interest owed is now $845.56. How much did she borrow from her mother?

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The answer of Peggy has never made any payments on...

Exam 8: Compound Interest: Future Value and Present Value