Exam 9: Compound Interest: Further Topics and Applications

Calculate the term of the loan or investment:

Three years ago, General Avionics announced plans to triple its annual R&D spending over the next 4 years. If R&D spending was increased by 25%, 30%, and 35% in the first 3 years, what minimum percent increase is required in the fourth year to reach the target?

One year ago, Morgan invested $5,000 to purchase 400 units of a mutual fund. He has just noted in the Financial Post that the fund's rate of return on investment for the year was 22% and that the current price of a unit is $13.75. What amount did the fund distribute as income per unit during the year?

Pat and Jaimie are twins. Pat will invest $2,500 on their 20^th birthday and the money will accumulate at 12% compounded annually until their 60^th birthday. Jamie will wait 10 more years, until they are 30 years old, and will then invest the same amount, $2,500. What annually compounded interest rate will Jamie need to achieve for the investment to catch up to Pat's when they are 60 years old?

Calculate the term of the loan or investment:

What rate of interest compounded quarterly has an effective rate of 6%?

What amount compounded monthly is equivalent to 6.75% compounded semi-annually?

The current (simple annualized) yield on a money market mutual fund, based on the return for the most recent seven days, is 4.12%. What effective (annualized) yield will be reported for the fund?

If the money supply increased from $331.12 billion to $333.81 billion in a single month, what were the simple and effective annualized rates of increase in the money supply during the month?

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

If the number of workers in the forest industry in Canada declined by 41% from the end of 1993 to the beginning of 2009, what was the compound annual rate of attrition in the industry?

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

Calculate the term of the loan or investment:

ln[(1.03)⁴ × (1.10)⁶] =

$5,000 invested in a GIC earning 3.7% compounded semiannually earned interest of $789.73.What was the term of the GIC?

Calculate the effective rate of interest if $1,000 grows to $1459.74 in five years with semiannual compounding.

A contract stipulated a payment of $8,500 plus 6.4% interest compounded monthly in 30 months. Prior to the due date, the contract was sold for $9,700 based on 3.8% interest compounded quarterly. How many months before maturity did the contract change hands?