Exam 9: Compound Interest: Further Topics and Applications

What is the significance of two nominal interest rates being equivalent?

An investment grew in value from $5,630 to $8,485 during a five-year period. The annual rate of inflation for the 5 years was 2.3%. What was the compound annual real rate of return during the five years?

A $5000 strip bond was purchased for $3054.29, providing the investor with a return of 3.9% compounded semiannually until the maturity date. To the nearest day, how long before the maturity date was the bond purchased?

The proceeds from the sale of a $4,500 five-year promissory note bearing interest at 5% compounded quarterly were $5277.81. How long before its maturity date was the note sold if it was discounted to yield 6.3% compounded monthly?

A $6300 face-value investment earning interest at 10% compounded annually for a six-year term was sold for $7550. How many years before its maturity date was the note sold if it was discounted to yield 12% compounded monthly?

A bank quotes 7.25% compounded monthly on a loan. What is the effective rate of interest charged?

Pat and Jaimie are twins. They will both invest $2,500 on their 20^th birthday. Pat's money will accumulate at 14% compounded annually for 35 years until their 55^th birthday. Being less of a risk taker Jamie will select an investment that will provide a return of only 8.5% compounded annually. If when they reach age 55, Jamie decides to leave the money growing at 8.5% how many more years will it take for Jamie's investment to reach the value that Pat's will be at age 55?

What is the remaining time until the maturity date of a $10,000 strip bond if it is purchased for $4,011.33 to yield 6.4% compounded semiannually until maturity?

If the nominal rate of interest paid on a savings account is 2% compounded monthly, what is the effective rate of interest?

Calculate the missing interest rate (to the nearest 0.01%)

After two consecutive years of 10% rates of return, what rate of return in the third year will produce a cumulative gain of 30%?

A $6,000, three-year promissory note bearing interest at 11% compounded semiannually was purchased 15 months into its term for $6,854.12. What monthly compounded discount rate was used in pricing the note?

A portfolio earned 20%, -20%, 0%, 20%, and -20% in five successive years. What was the portfolio's five-year equivalent annually compounded rate of return?

The current (simple annualized) yield, based on the holding-period return for the most recent seven days, is reported for a money market mutual fund as 4.54%. What is the fund's corresponding effective (annualized) yield?

Calculate nominal rate of interest (to the nearest 0.01%):

The amount owed on a promissory note for $950 after two years and five months is $1082.11. What monthly compounded nominal rate of interest was charged on the debt?

If an invoice indicates that interest at the rate of 1.2% per month will be charged on overdue amounts, what effective rate of interest will be charged?

In 3 successive years the price of the common shares of Abysmal Resources Ltd. fell 35%, 55%, and 80%, ending the third year at 75 cents. a) What was the share price at the beginning of the 3-year skid? b) How much (in dollars and cents) did the share price drop in the third year?

Calculate the equivalent interest rate (to the nearest 0.01%)

At 14% compounded annually, an investment of $50,000 will grow to $1,000,000 in 22.86 years. How much longer will it take at 11% compounded annually?