Exam 9: Compound Interest: Further Topics and Applications

A company's sales dropped 10% per year for 5 years. a) What annual rate of sales growth for the subsequent 5 years would return the sales to the original level? b) To the nearest month, how long would it take for sales to return to the original level if they increased at 10% per year?

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

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

A $5,000 face value strip bond may be purchased today for $1073.36 yielding the purchaser 7.27% compounded semiannually. How much time (to the nearest day) remains until the maturity date? Assume that each half-year has exactly 182 days.

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

ABC Ltd. reports that its sales are growing at the rate of 1.3% per month. DEF Inc. reports sales increasing by 4% each quarter. What is each company's effective annual rate of sales growth?

Last year, Kristina purchased a new condominium in downtown Toronto for $450,000 and used the property for rental income. During the past year, she rented the condo for $2200 per month. Property taxes were $4500 for the year, and there were no other expenses. The current appraised value of the property is the same as the purchase price. What is Kristina's income yield?

Which interest rate would you prefer to earn on a three-year GIC: 6% compounded monthly, 6.1% compounded quarterly, 6.2% compounded semiannually, or 6.3% compounded annually?

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

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

At the end of 2012, the RBC Canadian Dividend Fund was the largest equity mutual fund in Canada. The aggregate market value of its holdings at the end of 2012 was $9.995 billion. The fund's annual returns in successive years from 2003 to 2012 inclusive were 28.3%, 4.4%, -0.5%, 23.5%, 12.9%, 21.1%, 15.1%, 3.0% - 27.0%, and 27.3% respectively. For the 3-year, 5-year, and 10-year periods ending December 31, 2012, what were the fund's equivalent annually compounded returns?

For an investment to double in value during a 10-year period. a) What annually compounded rate of return must it earn? b) What monthly compounded rate of return must it earn?

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

A portfolio earned annual rates of 18%, 25%, -5%, -5%, and 12% in five successive years. The portfolio's equivalent annual compounded rate of return is 20%.

A $5,000 investment was purchased for $4220.50. The bond paid interest at a rate of 3.8% compounded semi-annually until the maturity date. What was the term of the investment?

A credit union pays 5.25% compounded annually on five-year compound interest: GICs. It wants to set the rates on its semiannually and monthly compounded GICs of the same maturity so that investors will earn the same total interest. What should be the rates on the GICs with the higher compounding frequencies?

The following table presents the rates of total return in successive years from 2004 to 2008 for the Sprott Canadian Equity Fund and for the benchmark Toronto Stock Exchange S&P/TSX Composite Index. By how much did the mutual fund's overall percentage return exceed or fall short of the Index's growth?

What rate of return in the second year of an investment is required to break even after a 30% loss in the first year?

A $25,000 strip bond is purchased for $8235 to yield 8% compounded semiannually. What is the remaining time until maturity?

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