Exam 9: Compound Interest: Further Topics and Applications

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

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

A portfolio earned annual rates of 18%, 25%, -5%, -5%, and 12% in five successive years. The portfolio's equivalent annual compounded rate of return is 20%.

What is meant by the "total return" from an investment?

To the nearest day, how long will it take a $20,000 investment to grow to $22,000 (including the accrued interest) if it earns 7% compounded quarterly? Assume that a quarter-year has 91 days.

A five-year investment earned the following annual rates of return: 4.2%, 6.8%, 9.8% 12.1% and -11.6%. Determine the average annual rate of return.

What monthly compounded nominal rate would put you in the same financial position as 5.5% compounded semiannually?

A department store credit card quotes a rate of 2% per month on any unpaid balance. Calculate the effective rate of interest being charged.

In the last year, the market value of the Muirs' bonds has declined from $1040.25 to $1020.75 each, and the coupons paid $30 in interest semi-annually. Calculate the following: a) Income yield. b) Capital gain yield. c) Rate of total return.

Over six years Craig earned interest of $8,400 on an investment of $20,000. What effective rate of return did he earn?

What rate of return in the second year of an investment will wipe out a 50% gain in the first year?

A department store currently charges an effective rate of 18% on its credit card. The store wants to add .25% per month to its monthly compounded rate. What new monthly compounded rate will the store charge?

A few years ago, Larissa invested $1500 at 3.75% compounded quarterly. If the investment is worth $1693.46 today, how many years ago did Larissa make the investment?

Rounded to the nearest month, how long will it take money to lose one-third of its purchasing power if the annual inflation rate is 3%?

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

Calculate the effective rate of interest if $1,000 grows to $1459.74 in five years with semiannual compounding.

An $8600 investment was worth only $7900 one year later. If the rate of total return for the year was -5%, how much income was received from the investment during the year?

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

A 30-year, $1,000 strip bond was traded for $167, four years after it was issued. What was the semi-annually compounded nominal rate at that time?

A semiannually compounded nominal rate and a monthly compounded nominal rate have the same effective rate. Which has the larger nominal rate? Explain.