Exam 9: Compound Interest: Further Topics and Applications

When he died in 1790, Benjamin Franklin left $4,600 to the city of Boston, with the stipulation that the money and its earnings could not be used for 100 years. The bequest grew to $332,000 by 1890. What equivalent compound annual rate of return did the bequest earn during the 100 year period?

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

The current (simple annualized) yield on a money market mutual fund, based on the return for the most recent seven days, is 4.12%. What effective (annualized) yield will be reported for the fund?

Determine the equivalent nominal rate of interest compounded semi-annually, as 4.2% compounded monthly.

After two consecutive years of 7% rates of return, what rate of return in the third year will produce a cumulative gain of 25%?

Calculate the term of the loan or investment:

Calculate the effective annual rate for 18% compounded annually.

You are offered a loan at a rate of 9% compounded monthly. What would a semiannually compounded nominal rate would a competing bank need to offer in order to provide an equivalent rate?

In early 2013, the Templeton Growth Fund ran advertisements containing the message: $10,000 INVESTED IN TEMPLETON GROWTH FUND IN 1954 WOULD BE WORTH OVER $9.09 MILLION TODAY. What compound annual rate of return did the fund realize over this period (December 31, 1954 to December 31, 2012)?

The price of Bionex Inc. shares rose by 25% in each of 2 successive years. If they began the 2-year period at $12 per share, what was the percent increase in price over the entire 2 years?

The maturity value of a four-year, $1,000 investment, is $1175.65. Calculate the nominal rate of interest paid on the investment if interest was compounded quarterly.

At what quarterly compounded nominal interest rate will money double in 75 months?

Gabriel received $200 of income from an investment during the past year. This represents an income yield of 4%. If the capital gain yield for the year was 10%, what was the value of the investment (not including income) at the end of the year?

What is the time remaining until the maturity date of a $50,000 strip bond if it has just been purchased for $20,822.89 to yield 5.38% compounded semiannually until maturity?

An invoice indicates that interest at the rate of 1.75% per month will be charged on overdue amounts. What effective rate of interest is being charged?

A strip bond that will mature 7½ years from now at its $13,000 face value can be purchased today for $9,042. What rate of return (compounded semiannually) will this strip bond provide to an investor?

An investor's portfolio increased in value by 53% over a five-year period while the Consumer Price Index rose from 121.6 to 135.3. What was the portfolio's annually compounded real rate of return?

A $100,000 face value Treasury bill with 65 days remaining to maturity, was purchased to yield 4.5% per annum simple interest. What is the corresponding equivalent effective rate of return?

The Consumer Price Index (based on a value of 100 in 1992) rose from 93.3 in 1990 to 113.5 in 2000. What was the (equivalent) annual rate of inflation in the decade of the 1990s?

How long will it take an investment to double in value if it earns 4.5% compounded quarterly?