Exam 8: Compound Interest: Future Value and Present Value

Calculate the maturity value:

What amount three years from now is equivalent to $3000 due five months from now? Assume that money can earn 7.5% compounded monthly.

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. -

Western Life's "Move-Up" compound-interest GIC earns 4.125%, 4.25%, 4.5%, 4.875%, and 5% in successive years. What will be the maturity value of $7500 invested in this GIC?

Determine the periodic interest rate for a nominal interest rate of 4.8% compounded: a. semiannually. b. quarterly. c. monthly.

Calculate the periodic rate of interest if the nominal interest rate is 6% compounded: a. monthly. b. quarterly. c. semiannually.

What payment 2¼ years from now would be a fair substitute for the combination of $1500 due (but not paid) 9 months ago and $2500 due in 4½ years, if money can earn 9% compounded quarterly?

What is the periodic rate of interest corresponding to: a. 5.4% compounded quarterly? b. 5.4% compounded monthly?

How much will $10,000 be worth after 25 years if it earns: a. 6% compounded semiannually? b. 7% compounded semiannually? c. 8% compounded semiannually?

Calculate the missing value:

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 a given term of compound-interest GIC, the nominal interest rate with annual compounding is typically 0.125% higher than the rate with semiannual compounding and 0.25% higher than the rate with monthly compounding. Suppose that the rates for 5-year GICs are 5.00%, 4.875%, and 4.75% for annual, semiannual, and monthly compounding, respectively. How much more will an investor earn over 5 years on a $10,000 GIC at the most favourable rate than at the least favourable rate?

Carla has decided to purchase a $30,000 car. She can either liquidate some of her investments and pay cash, or accept the dealer's terms of $7000 down and successive payments of $10,000, $9000, and $8000 at the end of each of the next three years. a) Which choice should Carla make if she can earn 7% compounded semiannually on her investments? In current dollars, how much is the economic advantage of the preferred alternative? b) Which choice should Carla make if she can earn 10% compounded semiannually on her investments? In current dollars, how much is the economic advantage of the preferred alternative?

A 30-year, $1,000 strip bond was issued by Sun Oil Company at a yield rate of 8.8% compounded semi-annually. How much money did Sun Oil borrow by issuing this bond?

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. -

Payments of $1300 due today and $1800 due in 1¾ years are to be replaced by a single payment 4 years from now. What is the amount of that payment if money is worth 6% compounded quarterly?

To what amount will $10,000 grow after 25 years if it earns: a. 9% compounded annually? b. 9% compounded semiannually? c. 9% compounded quarterly? d. 9% compounded monthly?

What is the maturity value of $5000 invested at 6.0% compounded semiannually for seven years?

Calculate the original principal:

A two-payment stream consisting of $1750 due today and $2900 due in 18 months is to be replaced by an economically equivalent stream comprised of an undetermined payment due in 9 months and a payment of $3000 due in 19 months. Calculate the unknown replacement payment if money is worth 9% compounded monthly.