Exam 9: Compound Interest: Further Topics and Applications

The insurance premium on a building is 0.05% of the face value. The face value is 75% of the building's market value. The insurance premium is $1650. What is the face value of the policy?

Calculate the effective annual rate, if $100 grew to $165 in 11.5 years with quarterly compounding.

Anders discovered an old pay statement from 11 years ago. His monthly salary at the time was $2,550 versus his current salary of $4,475 per month. At what (equivalent) compound annual rate has his salary grown during the period?

A life insurance company pays investors 5% compounded annually on its five-year GICs. For you to be indifferent as to which compounding option you choose, what would the nominal rates have to be on GICs with: a. Semiannual compounding? b. Quarterly compounding? c. Monthly compounding?

An investor purchased preferred shares on the Toronto Stock Exchange for $15.00. The shares pay a semi-annual dividend of $1.12. Six months later, the shares were trading at $14.50. What was the rate of total return for the six-month period?

On overdue accounts the telephone company charges 1.25% per month. What is the effective annual rate?

An investor's portfolio increased in value from $100,000 to $193,000 over a seven-year period in which the Consumer Price Index rose from 95.6 to 115.3. What was the compound annual real rate of return on the portfolio during the period?

If an invoice indicates that interest at the rate of 2% per month will be charged on overdue amounts, what effective rate of interest will be charged?

A stock valued at $150 increased by 25% and then decreased by 25%. What was the value of the stock after the decrease?

The following table presents the rates of total return in successive years from 2004 to 2008 for the AGF Canadian Stock 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?

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

An effective rate of 11.4% has a nominal rate of 10.84% based on monthly compounding.

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

The Canadian Consumer Price Index (based on a value of 100 in 1971) rose from 97.2 in 1970 to 113.5 in 1980. What was the (equivalent) annual rate of inflation in the decade of the 1970s?

The current (simple annualized) yield on a money market mutual fund, based on the return for the most recent seven days, is 5.62%. What effective (annualized) yield will be reported for the fund?

To the nearest month, how long will it take an investment to double in value if it earns 7.5% compounded semiannually?

The terms of payment on an invoice are 3/10, n/90. What are the simple and effective annualized rates of return earned by taking the cash discount on the last day of the discount period instead of paying the full price on the last day of the credit period?

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

Your client invests $10,000 today at a rate of return of 7.7% compounded quarterly. Rounded to the nearest month, how long will it take the investment to grow to $22,000?

When discounted to yield 7.98% compounded monthly, a $2,600 three-year promissory note bearing interest at 9.25% compounded annually was priced at $3110.41. How long after the issue date did the discounting take place?