Exam 9: Compound Interest: Further Topics and Applications

Kristina can invest in a two-year GIC for 5.85% compounded monthly or 6% compounded annually. Which option pays the most interest? Support your answer with calculations.

Assume that the TD Bank shares in Table 9.3 will pay a $2.54 per share dividend in 2013. What would the share price have needed to be at the end of 2013 for a total rate of return in 2013 of 7%?

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

At the end of 2012, the RBC Canadian Dividend Fund was the largest equity mutual fund in Canada. The aggregate market value of its holdings at the end of 2012 was $9.995 billion. The fund's annual returns in successive years from 2003 to 2012 inclusive were 28.3%, 4.4%, -0.5%, 23.5%, 12.9%, 21.1%, 15.1%, 3.0% - 27.0%, and 27.3% respectively. For the 3-year, 5-year, and 10-year periods ending December 31, 2012, what were the fund's equivalent annually compounded returns?

An investor's portfolio increased in value from $35,645 to $54,230 over a six-year period. At the same time, the Consumer Price Index rose by 26.5%. What was the portfolio's annually compounded real rate of return?

Rounded to the nearest month, how long will it take for $25,000 to grow to $35,000 at 9% compounded quarterly?

Advances in technology have improved the rate of production of widgets over the last 10 years and the number of plant workers required has declined by 25%. What is the equivalent annual rate of decrease during the period?

What is the effective rate of interest on a credit card that calculates interest at the rate of 1.8% per month?

5.4% compounded monthly is a better investment than 5.18% compounded semi-annually

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

A mutual fund paid 3.5%, 4%, 3.5%, 6%, and 5% over the past five years. If you had invested $1,000 at the beginning of the five-year period, what was your investment worth at the end of the five-year period?

The union representing the Stanford Marketing Services employees negotiated a salary increase in each of the next three years of 3%, 2.5%, and 2.75%. If an employee earns $16.00 per hour now, how much will the employee earn per hour at the end of the contract?

Jerome is planning on contributing $5,000 at the end of each semi-annual period for 8 years in an investment providing 8.4% compounded quarterly. At the end of this time, Jerome plans to reinvest this amount in another investment that will provide him with the opportunity to withdraw $1,500 per month over 5 years and have $10,000 remaining. Based on monthly compounding, determine what the rate of interest that will achieve this goal.

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

An investment grew in value from $5,630 to $8,485 during a five-year period. The annual rate of inflation for the 5 years was 2.3%. What was the compound annual real rate of return during the five years?

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 3.75%. What nominal annual rates should it quote for the three compounding options?

A department store chain currently charges 18% compounded monthly on its credit card. To what amount should it set the monthly compounded annual rate if it wants to add 2% to the effective interest rate?

The proceeds from the sale of a $3500 four-year promissory note bearing interest at 5% compounded quarterly were $3612.31. The note was discounted to yield 6.8% compounded semiannually. When was the note sold?

A $20,000 face value strip bond is sold for $8,524 to yield 8.4% compounded semi-annually. Calculate the maturity date to the nearest day.

What is the significance of two nominal interest rates being equivalent?