Exam 9: Compound Interest: Further Topics and Applications

Many department stores charge 2.4% per month on overdue accounts. What is the effective annual rate in this situation?

From a lender's point of view, would you rather disclose to borrowers the nominal interest rate or the effective interest rate?

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

A financial institution pays a simple interest rate of 6.7% on 30 to 179-day GICs of at least $100,000. What is the effective annualized rate of return: a) On a 40-day GIC? b) On a 160-day GIC?

To have an effective rate of 10%, what must be the corresponding nominal interest rate with: a. annual compounding? b. semiannual compounding? c. quarterly compounding? d. monthly compounding?

What is the effective rate of interest on a credit card that calculates interest at the rate of 1.8% per month?

What amount compounded quarterly is equivalent to 7.2% compounded monthly?

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

Rounded to the nearest month, how long before a scheduled payment of $10,000 would a payment of $5,000 be an economically equivalent alternative? Assume money is worth 5% compounded annually.

Determine the equivalent nominal rate of interest compounded semi-annually, as 4.2% compounded monthly.

The average Canadian home was $70,000 in the early 80s. In 30 years, the average increased to $390,000. The average increase is 5.89%

An income tax preparation service discounts income tax refunds at the statutory maximum amount of 15% on the first $300. For example, a taxpayer eligible for a $200 tax refund can sell the refund to the discounter for immediate payment of $170. What is the discounter's effective annualized rate of return if the time taken by Revenue Canada to process the tax return and refund the tax is a) 25 days? b) 50 days? (Note: With Revenue Canada's EFILE electronic tax return filing system, the turnaround time should be less than three weeks.)

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

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

You are offered a loan at a rate of 9% compounded monthly. Below what nominal rate of interest would you choose semiannual compounding instead?

An investment earned 8% compounded quarterly for 10 years, and then 5.15% compounded semi-annually for another 15. Determine the annual rate of interest per year compounded monthly.

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

How long will it take an investment to double in value if it earns 4.5% compounded quarterly?

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

Shares purchased one year ago for $8790 are now worth $15,390. During the year, the shares paid dividends totaling $280. Calculate the shares': a. Income yield b. Capital gain yield c. Rate of total return