Exam 8: Compound Interest: Future Value and Present Value

What was the redemption value of a $300 face value compound-interest series S108 CSB on March 8, 2013?

Daniel makes annual payments of $2,000 to the former owner of a residential lot that he purchased a few years ago. At the time of the fourth from last payment, Daniel asks for a payout figure that would immediately settle the debt. What amount should the payee be willing to accept instead of the last three payments, if money can earn 8.5% compounded semi-annually?

CompuSystems was supposed to pay a manufacturer $19,000 on a date 4 months ago and another $14,000 on a date two months from now. CompuSystems is proposing to pay $10,000 today and the balance in 5 months, when it will receive payment on a major sale to the provincial government. What will the second payment be if the manufacturer requires 6% compounded monthly on overdue accounts?

Calculate the maturity value of a five-year, $400,000 Guaranteed Investment Certificate at accumulating at 6% compounded quarterly.

A 25-year, $1,000 strip bond was first issued at 5.5% compounded semi-annually. Five years before maturity it was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.8% compounded semi-annually. What was the selling price at that time?

A $10,000 loan at 8% compounded semi-annually is to be repaid by three equal payments due 2½, 4, and 7 years after the date of the loan. What is the size of each payment?

To motivate individuals to start saving at an early age, financial planners will sometimes present the results of the following type of calculation. How much must a 25-year-old individual invest 5 years from now to have the same maturity value at age 55 as an immediate investment of $1,000? Assume that both investments earn 8% compounded annually.

Calculate the maturity value of the five-year compound-interest GIC whose interest rate for each year is given. Also calculate the dollar amount of interest earned in the fourth year.

It is estimated that the whale population in the North Atlantic will continue to decrease by 1.5% per year. At that rate what percentage of the current whale population will be lost over the next 20 years?

An eight year note for $3,800 with interest at 6% compounded semi-annually was sold after three years and three months to yield the buyer 9% compounded quarterly. What price did the buyer pay?

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.

If the inflation rate for the next 20 years is 4% per year, what hourly rate of pay in 20 years will be equivalent to $10 per hour today?

A $25,000 obligation is to be repaid by two payments. The first payment is one year from now, while the second is 2 years from now. In addition, the second payment will be twice the amount of the first. Interest is 6.65% compounded annually. Using the financial functions on the calculator, determine the size of each payment.

Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?

Gilbert has received two offers for his business. The first offer is for $200,000 now and $40,000 payments per year over the course of 5 years. The second offer is for $200,000 now and $50,000 payments per year for four years. If interest is 4.8% compounded quarterly, determine whether the first or second offer should be accepted, and by how much.

Two payments of $5,000 are scheduled six months and three years from now. They are to be replaced by a payment of $3,000 in two years, a second payment in 42 months, and a third payment, twice as large as the second, in five years. What should the last two payments be if money is worth 9% compounded semi-annually?

On the day it was issued, Aaron bought a 30-year, $1,000 strip bond at a market rate of 6% compounded semi-annually. Four years later he sold it to Zevon at the market rate of 7% compounded semi-annually. What was Aaron's profit or loss?

A $1,000 face value strip bond has 19 years remaining until maturity. What is its price if the market rate of return on such bonds is 3.9% compounded semi-annually?

The late 1970s and early 1980s were years of historically high rates of inflation in Canada. For the years 1978, 1979, 1980, 1981, and 1982 the rates of inflation were 8.8%, 9.2%, 10.9%, 12.6%, and 10.0%, respectively. a) Suppose your hourly wage at the beginning of 1978 was $10 per hour. What wage did you need to earn at the end of 1982 just to keep pace with inflation? b) What percentage of its purchasing power did money lose over these five years?

Suppose the future value of $1 after x years is $5. What is the present value of $1, x years before its scheduled payment date? (Assume the same interest rate in both cases.)