Exam 9: Compound Interest: Further Topics and Applications

For an investment to double in 5 years, the interest rate has to be 14.11% compounded quarterly.

Camille can obtain a residential mortgage loan from a bank at 5.5% compounded semiannually, or from an independent mortgage broker at 5.4% compounded monthly. Which source should she pick if other terms and conditions of the loan are the same? Present calculations that support your answer.

An investor paid $4217.17 to purchase a $10,000 face value strip bond for her RRSP. At this price the investment will provide a return of 6.47% compounded semiannually. How long (to the nearest day) after the date of purchase will the bond mature? Assume that each half-year is exactly 182 days long.

Wilf paid $557.05 for a $1,000 face value strip bond. At this price the investment will yield a return of 5.22% compounded semiannually. How long (to the nearest day) before its maturity date did Wilf purchase the bond? Assume that each half-year has exactly 182 days.

Last year, the Muirs purchased a rental condo in Woodbridge for $300,000. During the year, they paid $4,000 for property taxes and $2400 for repairs, and collected $1850 per month in rent. The home has increased in value to $335,000. Calculate the following: a) Income yield. b) Capital gain yield. c) Rate of total return. d) Total return.

Lisa is offered a loan from a bank at 4.2% compounded monthly. A credit union offers similar terms but a rate of 4.4% compounded semiannually. Which loan should she accept? Present calculations that support your answer.

What rate of return in the second year of an investment will nullify a 25% return on investment in the first year?

If a company's annual sales grew from $165,000 to $485,000 in a period of eight years, what has been the compound annual rate of growth of sales during the period?

The proceeds of a $9,000 8-year promissory note earning 5% compounded semi-annually were $10,474. How many years before maturity date was the note sold if the discounted rate was 7.2% compounded annually.

A four-year promissory note for $3,800 plus interest at 4.5% compounded semiannually was sold 18 months before maturity for $4093. What quarterly compounded (annual) rate of return will the buyer realize on her investment?

Calculate the equivalent interest rate (to the nearest 0.01%)

How long before a future payment of $1,000 would a payment of just $100 be an economically equivalent alternative? Round your answer to the nearest month. Assume money can earn 4.8% compounded semiannually.

The population of a mining town declined from 17,500 to 14,500 in a five-year period. If the population continues to decrease at the same compound annual rate, how long, to the nearest month, will it take for the population to drop by another 3,000?

A portfolio earned 20%, -20%, 0%, 20%, and -20% in five successive years. What was the portfolio's five-year equivalent annually compounded rate of return?

If the nominal rate of interest paid on a savings account is 2% compounded monthly, what is the effective rate of interest?

Calculate the missing interest rate (to the nearest 0.01%)

Calculate the missing interest rate (to the nearest 0.01%)

Calculate the equivalent interest rate (to the nearest 0.01%)

Calculate nominal rate of interest (to the nearest 0.01%):

A six-year, $20,000 GIC has a maturity value of $29,625. Calculate the semi-annually compounded nominal interest rate.