Exam 8: Compound Interest: Future Value and Present Value

A compound-interest GIC will earn 5% compounded annually for the first two years and 6% compounded annually for the last three years of its five-year term. What will be the maturity value of $3000 invested in this GIC?

What amount two years from will be equivalent to $2300 1½ years ago, if money earns 6.25% compounded semiannually during the intervening time?

A debtor owing payments of $750 due today, $1000 due in 2 years, and $1250 due in 4 years requests a payout figure to settle all three obligations by means of a single economically-equivalent payment 18 months from now. What is that amount if the payee can earn 9.5% compounded semiannually?

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. -

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 money can be invested to earn 6.5% compounded annually, how much would have to be invested today to grow to $10,000 after: a. 10 years? b. 20 years? c. 30 years?

For the 20 years ended December 31, 2008, the annually compounded rate of return on the portfolio of stocks represented by the S&P/TSX Composite Index was 2.66%. For the same period, the compound annual rate of inflation (as measured by the increase in the Consumer Price Index) was 2.39%. a) What was $1000 invested in the S&P/TSX stock portfolio on December 31, 1998, worth 20 years later? b) What amount of money was needed on December 31, 2008, to have the same purchasing power as $1000 on December 31, 1998? c) For an investment in the Index stock portfolio, what was the percent increase in purchasing power of the original $1000?

What is the future value of $8500 after 5½ years if it earns 9.5% compounded quarterly?

Calculate the maturity value:

A scheduled payment stream consisted of three payments: $2100 due (but not paid) 1½ years ago, $1300 due today, and $800 due in 2 years. What single payment, 6 months from now, would be economically equivalent to the payment stream?

Interest rates were at historical highs in the early 1980s. In August of 1981, you could earn 17.5% compounded annually on a five-year term deposit with a Canadian bank. Since then, the interest rate offered on five-year term deposits dropped to a low of 2.0% compounded annually in August of 2009. On a $10,000 deposit for a term of five years, how much more would you have earned at the historical high interest rate than at the more recent low rate?

In 2002 the number of workers in the forest industry was forecast to decline by 3% per year, reaching 80,000 in 2012. How many were employed in the industry in 1992?

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. -

For the five-year period ended June 30, 2009, the Desjardins Environment Fund had one of the best performances of all diversified Canadian equity funds. It effectively earned a compound annual return of 9.5% compared to the average of 4.4% for 287 diversified Canadian equity funds with a five-year history. How much more would an initial $1000 investment in the Desjardins Environment Fund have earned over the five-year period than a $1000 investment in a fund earning the average rate of return?

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

Roger has just invested $60,000 in a five-year Guaranteed Investment Certificate (GIC) earning 6% compounded semiannually. When the GIC matures, he will reinvest its entire maturity value in a new five-year GIC. What will be the maturity value of the second GIC if it yields: a) The same rate as the current GIC? b) 7% compounded semiannually? c) 5% compounded semiannually?

How much money would have to be invested today, at 9% compounded monthly in order to have $40,000 in seven years?

Determine the nominal rate of interest if the periodic rate is: a. 1.5% per month?. b. 1.5% per quarter? c. 1.5% per half year.

Calculate the nominal interest rate if the periodic rate is: a. 3.6%% per half year. b. 1.8% per quarter. c. 0.6% per month.

A $1000 face value compound-interest series S96 Canada Savings Bond was redeemed on March 14, 2010. What amount did the bond's owner receive? (Obtain the issue date and the interest rates paid on the bond from Table 8.2)