Exam 8: Compound Interest: Future Value and Present Value

If the present value of $100 due eight years from now is $50, what is the present value of $100 due 16 years from now? Answer without using formula (8-2).

What was the issue price of a 25-year strip bond with a face value of $50,000 and a discount rate of 7% compounded semi-annually?

Mrs. Sandhu placed $11,500 in a 4-year compound-interest GIC earning 6.75% compounded monthly. What is the GIC's maturity value?

Sun Life Financial offers a five-year compound-interest GIC earning rates of 2.5%, 3%, 3.5%, 4.25%, and 5% in successive years. Manulife offers a similar GIC paying rates of 2.75%, 3.25%, 3.5%, 4%, and 4.25% in successive years. For a $10,000 investment, calculate the interest earned in the third year in each GIC.

A $6000 loan at 9% compounded quarterly is to be settled by two payments. The first payment is due after 9 months and the second payment, half the amount of the first payment, is due after 1½ years. Determine the size of each payment.

What is the maturity value of a $3500 loan for 15 months at 12% compounded quarterly?

What amount invested today would grow to $10,000 after 25 years if the investment earns: a. 8% compounded annually? b. 8% compounded semiannually? c. 8% compounded quarterly? d. 8% compounded monthly?

Andy borrowed money four years ago at 13.2 % compounded monthly. He now owes a total of $13,743. How much of this is interest?

Calculate the missing value:

Marvin has a five-year GIC which has a maturity value of $88,206.38. The GIC is accumulating at 6.2% compounded semi-annually. What is the principal of the GIC?

Determine the nominal interest rate if the periodic rate is: a) 1.25% per quarter. b) % per month.

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. -

Go to www.mcgrawhill.ca/olc/jerome/ and work your way to the page for the Student Edition. In the Student Edition's navigation bar, select "Chapter 8" in the drop-down box. In the list of resources for Chapter 8, select "Links in Textbook". Click on the link named "Canoe Money GIC's". This Web page provides a comprehensive comparison of current rates available on GIC's for terms of one to five years. How much more would you earn on $10,000 invested for five years at the highest available rate than at the lowest?

What amount was invested 35 years ago at 7% compounded semi-annually if the value of the investment has now grown to $1,000,000?

Calculate the maturity value of $18,559 after 7.5 years at 9% compounded quarterly.

What is the present value of $10,000 discounted at 4.5% compounded annually over ten years?

Suppose it took x years for an investment to grow from $100 to $200 at a fixed compound rate of return. How many more years will it take to earn an additional: a) $100? b) $200? c) $300? In each case, pick an answer from: (i) more than x years, (ii) less than x years, (iii) exactly x years.

Calculate the missing value:

$10,000 is invested at 7% compounded annually. Over the next years, how much of the investment's increase in value represents: a. Earnings strictly on the original $10,000 principal? b. Earnings on re-invested earnings? (This amount reflects the cumulative effect of compounding.)

Follow the instructions in the NET @ssets box earlier in this section to access the interactive chart named "Future Value of $100" in the student textbook's OLC. Use the chart to help you answer these questions. Over a 25-year period, how much more (expressed as a percentage) will an investment be worth if it earns: a) 6% compounded monthly instead of 6% compounded annually? b) 9% compounded monthly instead of 9% compounded annually? c) 12% compounded monthly instead of 12% compounded annually?