Exam 9: Compound Interest: Further Topics and Applications

Marcie received an invoice for $150, with terms 2/15, net 30. Determine the effective annualized rate of return equivalent to the discount.

An original loan of $6,500 has accumulated to $10,093.14 based on 9.2% interest compounded annually. The loan is five years old.

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

What rate of return in the second year of an investment is required to break even after a 50% loss in the first year?

Is the effective rate of interest ever numerically smaller than the nominal interest rate?

Lisa is offered a loan from a bank at 4.2% compounded monthly. A credit union offers similar terms but a rate of 4.4% compounded semiannually. Which loan should she accept? Present calculations that support your answer.

The home the Bensons purchased 13 years ago for $115,000 is now appraised at $385,000. What has been the annual rate of appreciation of the value of their home during the 13- year period?

A bank offers a rate of 5.3% compounded semiannually on its four-year GICs. What monthly and annually compounded rates should it quote in order to have the same effective interest rate at all three nominal rates?

Camille can obtain a residential mortgage loan from a bank at 8.75% compounded semiannually or from an independent mortgage broker at 8.6% compounded monthly. Which source should she pick if other terms and conditions of the loan are the same? Present calculations that support your answer.

The population of Canada grew from 24,820,000 at the start 1981 to 33,740,000 at the end of 2009. The annual rate of growth over 29 years was 1.06%

The S&P/TSX Composite Index rose 3.4%, dropped 1.4%, and then rose 2.1% in 3 successive months. The Index ended the 3-month period at 9539. a) What was the Index at the beginning of the 3-month period? b) How many points did the Index drop in the second month?

A few years ago Avtar invested $6,000 in a compound-interest GIC that earned 4.5% compounded semiannually. He recently received the maturity value of $7,168.99. What was the term of the GIC?

What is the monthly compounded nominal rate that is equivalent to 7.8% compounded semi-annually?

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

10.20% compounded monthly is equal to 10.69% compounded annually.

Marilyn was supposed to pay $1,450 to Bernice on March 1. Some time later Marilyn paid Bernice an equivalent payment of $1,528.01, allowing for a time value of money of 4.5% compounded monthly. When did Marilyn make the payment?

Sollozo just made a single payment to repay a loan he had with the Corleone Finance Company. He paid a total of $86,500 which included interest of $56,500 at 48% compounded monthly. How long ago was the money borrowed?

Craig can buy a three-year compound-interest GIC paying 4.6% compounded semiannually or 4.5% compounded monthly. Which option should he choose? Present calculations that support your answer.

Is the effective rate of interest ever equal to the nominal interest rate?

The Wilsons bought their home 16 years ago for $128,000. Its value now is $141,000. At what annual rate has the value of their home appreciated since they bought it?