Exam 8: Compound Interest: Future Value and Present Value

Calculate the missing value:

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

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 12% compounded monthly on overdue accounts?

Calculate the compounding frequency for a nominal rate of 6.6% if the periodic rate of interest is: a. 1.65%. b. 3.3%. c. 0.55%.

$8000 is invested in a five-year compound-interest GIC earning interest rates of 4%, 4.5%, 5%, 5.5%, and 6% in successive years. What amount will the investor receive at maturity?

Consider a $5000 face value Province of Ontario strip bond from the issue in Table 8.3 that matures on December 1, 2018. If the yield does not change as years go by, what will be the bond's value on: a) December 1, 2012? b) December 1, 2014? c) December 1, 2016?

Calculate the original principal:

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.

What principal earning 16% compounded quarterly will grow to $8500 after six years and three months?

Calculate the missing value:

For a given nominal interest rate (say 10%) on a loan, would the borrower prefer it to be compounded annually or compounded monthly? Which compounding frequency would the lender prefer? Give a brief explanation.

What regular interest payment will Grandmamma receive from a seven-year, $1,750,000 monthly payment GIC earning a nominal rate of 5.4% compounded monthly?

Teresita has three financial obligations to the same person: $2700 due in 1 year, $1900 due in 1½ years, and $1100 due in 3 years. She wishes to settle the obligations with a single payment in 2¼ years, when her inheritance will be released from her mother's estate. What amount should the creditor accept if money can earn 9% compounded monthly from the date nine months ago when the obligations were incurred?

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, which GIC will have the greater maturity value after five years? How much greater?

If the inflation rate for the next 10 years is 4.5% per year, what hourly rate of pay in 10 years will be equivalent to $15 per hour today?

A $4000 loan at 10% compounded monthly is to be repaid by three equal payments due 5, 10, and 15 months from the date of the loan. What is the size of the payments?

Assume that a $10,000 investment can earn 8% compounded quarterly. What will be its future value: a. After 15 years? b. After 20 years? c. After 25 years? d. After 30 years?

What is the nominal rate of interest if the periodic rate is: a) per month? b) 5.8% per year?

Calculate the missing value:

Calculate the original principal: