Exam 9: Compound Interest: Further Topics and Applications

Bobby invested $1,000 for five years. For the first two years he earned 9% compounded monthly. For the next two years he earned 11% compounded quarterly. For the final year he earned 14% compounded semi-annually. What was his effective rate of return over the five years?

The price of Bionex Inc. shares rose by 25% in each of 2 successive years. If they began the 2-year period at $12 per share, what was the percent increase in price over the entire 2 years?

$7,500 was borrowed for a four-year term at 9% compounded quarterly. The terms of the loan allow prepayment of the loan based on discounting the loan's maturity value at 7% compounded quarterly. How long (to the nearest day) before the maturity date was the loan prepaid if the payout amount was $9,380.24? For the purpose of determining the number of days in a partial calendar quarter, assume that a full quarter has 91 days.

Can the income yield from an investment be negative? Explain or give an example.

Enrolment at the local university increased 20% over a four year period. Determine the average annual rate of enrolment during this time.

The Consumer Price Index rose from 131.2 to 132.1 during the second quarter of a year. What was the effective annualized rate of inflation during the quarter?

A mutual fund paid 3.5%, 4%, 3.5%, 6%, and 5% over the past five years. If you had invested $1,000 at the beginning of the five-year period, what was your investment worth at the end of the five-year period?

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

An investor paid $4217.17 to purchase a $10,000 face value strip bond for her RRSP. At this price the investment will provide a return of 6.47% compounded semiannually. How long (to the nearest day) after the date of purchase will the bond mature? Assume that each half-year is exactly 182 days long.

What monthly compounded nominal rate has an effective rate of 14.29%

For a three-year investment, what rate compounded semiannually is equivalent to 4.6% compounded quarterly?

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

A $10,000 payment on March 15^th was not paid. Instead $10,158.63 was paid earning 6.4% interest compounded monthly. The payment was made on June 13.

What semiannually compounded rate is equivalent to 8.5% compounded quarterly?

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

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

In early 2013, the Templeton Growth Fund ran advertisements containing the message: $10,000 INVESTED IN TEMPLETON GROWTH FUND IN 1954 WOULD BE WORTH OVER $9.09 MILLION TODAY. What compound annual rate of return did the fund realize over this period (December 31, 1954 to December 31, 2012)?

If the holding-period return on a money market mutual fund for the most recent seven days is 0.111%, what current (simple) yield and effective annualized yield will be quoted for the fund in the financial press?

Terry was supposed to pay $800 to Becky on March 1. At a later date, Terry paid Becky an equivalent payment in the amount of $895.67. If they provided for a time value of money of 8% compounded monthly, when did Terry make the payment?

The Canadian Consumer Price Index (based on a value of 100 in 1971) rose from 97.2 in 1970 to 210.6 in 1980 and (based on a value of 100 in 1986) rose from 67.2 in 1980 to 119.5 in 1990. Calculate the annual rate of inflation for the period 1970-1990.