Question 1

Given a periodic interest rate of 0.9375%, calculate the nominal interest rate if interest is compounded quarterly.

Accepted Answer

The answer of Given a periodic interest rate of 0.9375%,...

Question 2

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?

Accepted Answer

A)  $$441,889 
B)  $$539,731 
C)  $299,057 
D)  $752,198 
E)  $135,067 
A)  $$441,889 
B)  $$539,731 
C)  $299,057 
D)  $752,198 
E)  $135,067

Question 3

Calculate the missing value:

Accepted Answer

11.75% com

Question 4

A four year $8,000 promissory note bearing interest at 6.6% compounded monthly was discounted 21 months after issue to yield 4.8% compounded quarterly. What were the proceeds from the sale of the note?

Accepted Answer

The answer of A four year $8,000 promissory note bearing...

Question 5

Lori-Anne invests $2,500 over a two and a half year period at 5% compounded quarterly. Thereafter, the interest rate changes to 6% compounded monthly. Determine the value of the investment two years after the interest rate change.

Accepted Answer

A)  $7,190.63 
B)  $6,190.63 
C)  $5,190.63 
D)  $4,190.63 
E)  $3,190.63 
A)  $7,190.63 
B)  $6,190.63 
C)  $5,190.63 
D)  $4,190.63 
E)  $3,190.63

Question 6

A bond pays $1,000 interest at the end of every year for the next 30 years. What is the current economic value of each of the 15th and 30th payments if we discount the payments at:
a) 4% compounded semi-annually?
b) 8% compounded semi-annually?

Accepted Answer

a) 15^th: $552.07; 30^th:

Question 7

Determine the periodic interest rate for a nominal interest rate of:
a) 8% compounded semi-annually?
b) 8% compounded monthly?

Accepted Answer

a) 4% per

Question 8

Isaac borrowed $3,000 at 10.5% compounded quarterly 3½ years ago. One year ago he made a payment of $1,200. What amount will extinguish the loan today?

Accepted Answer

The answer of Isaac borrowed $3,000 at 10.5% compounded quarterly...

Question 9

Miquel was supposed to make three payments of $2,000 each-the first one year ago, the second one year from now, and the third three years from now. He missed the first payment and proposes to pay $3,000 today and a second amount in two years. If money can earn 4.5% compounded semi-annually, what must the second payment be to make the proposed payments equivalent to the scheduled payments?

Accepted Answer

The answer of Miquel was supposed to make three payments...

Question 10

Eric invested $22,000 in a 5-year regular-interest GIC earning 4.5% compounded monthly. What is each monthly interest payment?

Accepted Answer

The answer of Eric invested $22,000 in a 5-year regular-interest...

Question 11

Assume money can earn 15% compounded semi-annually. Rank the following payments in order of the payee's first choice, second choice, and third choice, respectively: 10,000 paid today, $20,000 to be paid five years from today, or $13,500,000 to be paid fifty years from today.

Accepted Answer

A)  $10,000; $20,000; $13,500,000 
B)  $10,000; $13,500,000; $20,000 
C)  $13,500,000; $10,000; $20,000 
D)  $13,500,000; $20,000; $10,000 
E)  $20,000; $13,500,000; $10,000 
A)  $10,000; $20,000; $13,500,000 
B)  $10,000; $13,500,000; $20,000 
C)  $13,500,000; $10,000; $20,000 
D)  $13,500,000; $20,000; $10,000 
E)  $20,000; $13,500,000; $10,000

Question 12

Albert purchased Bonzo's car for $500 cash and a non-interest bearing promissory note for $2,000 payable in two years. How much money can Bonzo expect to receive for the note if he immediately sells it to Corleone Finance Company at a discount rate of 30% compounded monthly?

Accepted Answer

A)  $383 
B)  $2,616 
C)  $1,617 
D)  $1,400 
E)  $1,106 
A)  $383 
B)  $2,616 
C)  $1,617 
D)  $1,400 
E)  $1,106

Question 13

A lottery prize gives the winner a choice between (1) $10,000 now and another $10,000 in 5 years, or (2) four $7,000 payments: now and in 5, 10, and 15 years.
a) Which alternative should the winner choose if money can earn 6% compounded annually? In current dollars, what is the economic advantage of the preferred alternative?
b) Which alternative should the winner choose if money can earn 8.5% compounded annually? In current dollars, what is the economic advantage of the preferred alternative?

Accepted Answer

a) Alternative 2 is

Question 14

By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer.
a) 8.0% compounded monthly.
b) 8.1% compounded quarterly.
c) 8.2% compounded semi-annually.
d) 8.3% compounded annually.

Accepted Answer

The answer of By calculating the maturity value of $100...

Question 15

Calculate the maturity value of a two-year, $20,000 Guaranteed Investment Certificate accumulating at 5% compounded semi-annually.

Accepted Answer

A)  $18,119 
B)  $20,000 
C)  $22,076 
D)  $23,612 
E)  $24,310 
A)  $18,119 
B)  $20,000 
C)  $22,076 
D)  $23,612 
E)  $24,310

Question 16

For a given term of compound-interest GIC, the nominal interest rate with annual compounding is typically 0.125% higher than the rate with semi-annual compounding and 0.25% higher than the rate with monthly compounding. Suppose that the rates for 5-year GICs are 3.00%, 2.875%, and 2.75% for annual, semi-annual, and monthly compounding, respectively. How much more will an investor earn over 5 years on a $10,000 GIC at the most favourable rate than at the least favourable rate?

Accepted Answer

$120.53 mo

Question 17

If two payment streams are equivalent at one interest rate, will they be equivalent at another interest rate?

Accepted Answer

No; the payments are

Question 18

What principal earning 16% compounded quarterly will grow to $8,500 after six years and three months?

Accepted Answer

A)  $448.66 
B)  $22,659.61 
C)  $3,188.49 
D)  $3,361.68 
E)  $3,147.71 
A)  $448.66 
B)  $22,659.61 
C)  $3,188.49 
D)  $3,361.68 
E)  $3,147.71

Question 19

Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?

Accepted Answer

A)  $63,276 
B)  $38,090 
C)  $55,461 
D)  $41,962 
E)  $55,759 
A)  $63,276 
B)  $38,090 
C)  $55,461 
D)  $41,962 
E)  $55,759

Question 20

If the total interest earned on an investment at 8.2% compounded semi-annually for 8½ years was $1,175.98, what was the original investment?

Accepted Answer

The answer of If the total interest earned on an...

Given a periodic interest rate of 0.9375%, calculate the nominal interest rate if interest is compounded quarterly.

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?

Calculate the missing value:

A four year $8,000 promissory note bearing interest at 6.6% compounded monthly was discounted 21 months after issue to yield 4.8% compounded quarterly. What were the proceeds from the sale of the note?

Lori-Anne invests $2,500 over a two and a half year period at 5% compounded quarterly. Thereafter, the interest rate changes to 6% compounded monthly. Determine the value of the investment two years after the interest rate change.

A bond pays $1,000 interest at the end of every year for the next 30 years. What is the current economic value of each of the 15^th and 30^th payments if we discount the payments at: a) 4% compounded semi-annually? b) 8% compounded semi-annually?

Determine the periodic interest rate for a nominal interest rate of: a) 8% compounded semi-annually? b) 8% compounded monthly?

Isaac borrowed $3,000 at 10.5% compounded quarterly 3½ years ago. One year ago he made a payment of $1,200. What amount will extinguish the loan today?

Eric invested $22,000 in a 5-year regular-interest GIC earning 4.5% compounded monthly. What is each monthly interest payment?

Assume money can earn 15% compounded semi-annually. Rank the following payments in order of the payee's first choice, second choice, and third choice, respectively: 10,000 paid today, $20,000 to be paid five years from today, or $13,500,000 to be paid fifty years from today.

Albert purchased Bonzo's car for $500 cash and a non-interest bearing promissory note for $2,000 payable in two years. How much money can Bonzo expect to receive for the note if he immediately sells it to Corleone Finance Company at a discount rate of 30% compounded monthly?

By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer. a) 8.0% compounded monthly. b) 8.1% compounded quarterly. c) 8.2% compounded semi-annually. d) 8.3% compounded annually.

Calculate the maturity value of a two-year, $20,000 Guaranteed Investment Certificate accumulating at 5% compounded semi-annually.

If two payment streams are equivalent at one interest rate, will they be equivalent at another interest rate?

What principal earning 16% compounded quarterly will grow to $8,500 after six years and three months?

Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?

If the total interest earned on an investment at 8.2% compounded semi-annually for 8½ years was $1,175.98, what was the original investment?

Review and Applications of Basic Mathematics

A: Review and Applications of Algebra

B: Review and Applications of Algebra

Ratios and Proportions

Mathematics of Merchandising

Cost-Volume-Profit Analysis

Simple Interest

Applications of Simple Interest

Compound Interest: Further Topics and Applications

Annuities: Future Value and Present Value

Annuities: Periodic Payment, Number of Payments, and Interest Rate

Annuities: Special Situations

Loan Amortization; Mortgages

Filters

Exam 8: Compound Interest: Future Value and Present Value

Given a periodic interest rate of 0.9375%, calculate the nominal interest rate if interest is compounded quarterly.

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?

Calculate the missing value:

A four year $8,000 promissory note bearing interest at 6.6% compounded monthly was discounted 21 months after issue to yield 4.8% compounded quarterly. What were the proceeds from the sale of the note?

Lori-Anne invests $2,500 over a two and a half year period at 5% compounded quarterly. Thereafter, the interest rate changes to 6% compounded monthly. Determine the value of the investment two years after the interest rate change.

A bond pays $1,000 interest at the end of every year for the next 30 years. What is the current economic value of each of the 15th and 30th payments if we discount the payments at: a) 4% compounded semi-annually? b) 8% compounded semi-annually?

Determine the periodic interest rate for a nominal interest rate of: a) 8% compounded semi-annually? b) 8% compounded monthly?

Isaac borrowed $3,000 at 10.5% compounded quarterly 3½ years ago. One year ago he made a payment of $1,200. What amount will extinguish the loan today?

Eric invested $22,000 in a 5-year regular-interest GIC earning 4.5% compounded monthly. What is each monthly interest payment?

Assume money can earn 15% compounded semi-annually. Rank the following payments in order of the payee's first choice, second choice, and third choice, respectively: 10,000 paid today, $20,000 to be paid five years from today, or $13,500,000 to be paid fifty years from today.

Albert purchased Bonzo's car for $500 cash and a non-interest bearing promissory note for $2,000 payable in two years. How much money can Bonzo expect to receive for the note if he immediately sells it to Corleone Finance Company at a discount rate of 30% compounded monthly?

By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer. a) 8.0% compounded monthly. b) 8.1% compounded quarterly. c) 8.2% compounded semi-annually. d) 8.3% compounded annually.

Calculate the maturity value of a two-year, $20,000 Guaranteed Investment Certificate accumulating at 5% compounded semi-annually.

If two payment streams are equivalent at one interest rate, will they be equivalent at another interest rate?

What principal earning 16% compounded quarterly will grow to $8,500 after six years and three months?

Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?

If the total interest earned on an investment at 8.2% compounded semi-annually for 8½ years was $1,175.98, what was the original investment?

Review and Applications of Basic Mathematics

A: Review and Applications of Algebra

B: Review and Applications of Algebra

Ratios and Proportions

Mathematics of Merchandising

Cost-Volume-Profit Analysis

Simple Interest

Applications of Simple Interest

Compound Interest: Further Topics and Applications

Annuities: Future Value and Present Value

Annuities: Periodic Payment, Number of Payments, and Interest Rate

Annuities: Special Situations

Loan Amortization; Mortgages

Filters

A bond pays $1,000 interest at the end of every year for the next 30 years. What is the current economic value of each of the 15^th and 30^th payments if we discount the payments at: a) 4% compounded semi-annually? b) 8% compounded semi-annually?