Exam 9: Compound Interest: Further Topics and Applications

If a $15,000 investment grew to $21,805 in 4½ years of quarterly compounding, what effective rate of return was the investment earning?

If the holding-period return on a money market mutual fund for the most recent seven days is 0.097%, what current (simple) and effective annualized yields will be quoted for the fund in the financial media?

Over nine years Craig earned interest of $29,700 on an investment of $16,000. What effective rate of return did he earn?

The proceeds of a $9,000 8-year promissory note earning 5% compounded semi-annually were $10,474. How many years before maturity date was the note sold if the discounted rate was 7.2% compounded annually.

How long will it take a $1,000 investment to grow to $1500 if it earns 3.8% compounded annually?

The federal government cut transfer payments to the provinces by a total of 20% over a five-year period. In the next budget speech, the Minister of Finance announced "the level of transfer payments will be restored to their former level by a 20% increase to be phased in over the next two years." Is this an accurate statement? Explain briefly.

A credit card company wishes to reduce its effective interest rate by 4%. It currently charges a periodic rate of 1.75% per month. Determine by what amount the company should it set its new monthly periodic rate.

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 rate of total return?

Over six years Craig earned interest of $8,400 on an investment of $20,000. What effective rate of return did he earn?

The Calgary Real Estate Board reports that house prices increased by 5% during the first seven months of the year. If prices continue to rise at the same rate for the subsequent five months, what will be the (compound) increase for the entire year?

What is meant by the effective rate of interest?

Determine the equivalent nominal rate of interest compounded monthly, as 8.4% compounded quarterly.

9.1% compounded annually is a better investment than 8.8% compounded monthly.

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

After 27 months of quarterly compounding, a $3,000 debt had grown to $3,810. What effective rate of interest was being charged on the debt?

A $50,000 strip bond was discounted to $21,680. The market rate was 7.4% compounded semi-annually. How much time was left before the bond reached maturity?

A 30-year, Government of Canada $10,000 strip bond was discounted at 4.9% compounded semi-annually and traded for $4,722. How many years earlier had the bond been issued?

How long did it take $4,625 earning 4.875% compounded annually to grow to $6768.42?

Calculate the effective annual rate for 18% compounded annually.

A semiannually compounded nominal rate and a monthly compounded nominal rate have the same effective rate. Which has the larger nominal rate? Explain.