Question 1

Kristina can invest in a two-year GIC for 5.85% compounded monthly or 6% compounded annually. Which option pays the most interest? Support your answer with calculations.

Accepted Answer

The answer of Kristina can invest in a two-year GIC...

Question 2

Assume that the TD Bank shares in Table 9.3 will pay a $2.54 per share dividend in 2013. What would the share price have needed to be at the end of 2013 for a total rate of return in 2013 of 7%?

Accepted Answer

The answer of Assume that the TD Bank shares in...

Question 3

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

Accepted Answer

The answer of Calculate the missing interest rate (to the...

Question 4

At the end of 2012, the RBC Canadian Dividend Fund was the largest equity mutual fund in Canada. The aggregate market value of its holdings at the end of 2012 was $9.995 billion. The fund's annual returns in successive years from 2003 to 2012 inclusive were 28.3%, 4.4%, -0.5%, 23.5%, 12.9%, 21.1%, 15.1%, 3.0% - 27.0%, and 27.3% respectively. For the 3-year, 5-year, and 10-year periods ending December 31, 2012, what were the fund's equivalent annually compounded returns?

Accepted Answer

The answer of At the end of 2012, the RBC...

Question 5

An investor's portfolio increased in value from $35,645 to $54,230 over a six-year period. At the same time, the Consumer Price Index rose by 26.5%. What was the portfolio's annually compounded real rate of return?

Accepted Answer

The answer of An investor's portfolio increased in value from...

Question 6

Rounded to the nearest month, how long will it take for $25,000 to grow to $35,000 at 9% compounded quarterly?

Accepted Answer

A)  3 years, 8 months 
B)  5 years, 1 month 
C)  4 years, 4 months 
D)  5 years, 6 months 
E)  3 years, 1 month

Question 7

Advances in technology have improved the rate of production of widgets over the last 10 years and the number of plant workers required has declined by 25%. What is the equivalent annual rate of decrease during the period?

Accepted Answer

The answer of Advances in technology have improved the rate...

Question 8

What is the effective rate of interest on a credit card that calculates interest at the rate of 1.8% per month?

Accepted Answer

The answer of What is the effective rate of interest...

Question 9

5.4% compounded monthly is a better investment than 5.18% compounded semi-annually

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

The answer of Calculate the equivalent interest rate (to the...

Question 11

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?

Accepted Answer

A)  $1220.00 
B)  $1617.34 
C)  $1771.38 
D)  $1239.96 
E)  $1180.92

Question 12

The union representing the Stanford Marketing Services employees negotiated a salary increase in each of the next three years of 3%, 2.5%, and 2.75%. If an employee earns $16.00 per hour now, how much will the employee earn per hour at the end of the contract?

Accepted Answer

The answer of The union representing the Stanford Marketing Services...

Question 13

Jerome is planning on contributing $5,000 at the end of each semi-annual period for 8 years in an investment providing 8.4% compounded quarterly. At the end of this time, Jerome plans to reinvest this amount in another investment that will provide him with the opportunity to withdraw $1,500 per month over 5 years and have $10,000 remaining. Based on monthly compounding, determine what the rate of interest that will achieve this goal.

Accepted Answer

A)  3.77% 
B)  4.07% 
C)  4.37% 
D)  4.77% 
E)  5.07%

Question 14

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

Accepted Answer

The answer of Calculate the missing interest rate (to the...

Question 15

An investment grew in value from $5,630 to $8,485 during a five-year period. The annual rate of inflation for the 5 years was 2.3%. What was the compound annual real rate of return during the five years?

Accepted Answer

The answer of An investment grew in value from $5,630...

Question 16

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 3.75%. What nominal annual rates should it quote for the three compounding options?

Accepted Answer

The answer of Columbia Trust wants its annually, semiannually, and...

Question 17

A department store chain currently charges 18% compounded monthly on its credit card. To what amount should it set the monthly compounded annual rate if it wants to add 2% to the effective interest rate?

Accepted Answer

The answer of A department store chain currently charges 18%...

Question 18

The proceeds from the sale of a $3500 four-year promissory note bearing interest at 5% compounded quarterly were $3612.31. The note was discounted to yield 6.8% compounded semiannually. When was the note sold?

Accepted Answer

The answer of The proceeds from the sale of a...

Question 19

A $20,000 face value strip bond is sold for $8,524 to yield 8.4% compounded semi-annually. Calculate the maturity date to the nearest day.

Accepted Answer

A)  11 years and 110 days 
B)  10 years and 110 years 
C)  10 years and 133 days 
D)  9 years and 110 days 
E)  9 years and 133 days

Question 20

What is the significance of two nominal interest rates being equivalent?

Accepted Answer

The answer of What is the significance of two nominal...

Exam 9: Compound Interest: Further Topics and Applications

Kristina can invest in a two-year GIC for 5.85% compounded monthly or 6% compounded annually. Which option pays the most interest? Support your answer with calculations.

Assume that the TD Bank shares in Table 9.3 will pay a $2.54 per share dividend in 2013. What would the share price have needed to be at the end of 2013 for a total rate of return in 2013 of 7%?

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

An investor's portfolio increased in value from $35,645 to $54,230 over a six-year period. At the same time, the Consumer Price Index rose by 26.5%. What was the portfolio's annually compounded real rate of return?

Rounded to the nearest month, how long will it take for $25,000 to grow to $35,000 at 9% compounded quarterly?

Advances in technology have improved the rate of production of widgets over the last 10 years and the number of plant workers required has declined by 25%. What is the equivalent annual rate of decrease during the period?

What is the effective rate of interest on a credit card that calculates interest at the rate of 1.8% per month?

5.4% compounded monthly is a better investment than 5.18% compounded semi-annually

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

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?

The union representing the Stanford Marketing Services employees negotiated a salary increase in each of the next three years of 3%, 2.5%, and 2.75%. If an employee earns $16.00 per hour now, how much will the employee earn per hour at the end of the contract?

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

An investment grew in value from $5,630 to $8,485 during a five-year period. The annual rate of inflation for the 5 years was 2.3%. What was the compound annual real rate of return during the five years?

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 3.75%. What nominal annual rates should it quote for the three compounding options?

A department store chain currently charges 18% compounded monthly on its credit card. To what amount should it set the monthly compounded annual rate if it wants to add 2% to the effective interest rate?

The proceeds from the sale of a $3500 four-year promissory note bearing interest at 5% compounded quarterly were $3612.31. The note was discounted to yield 6.8% compounded semiannually. When was the note sold?

A $20,000 face value strip bond is sold for $8,524 to yield 8.4% compounded semi-annually. Calculate the maturity date to the nearest day.

What is the significance of two nominal interest rates being equivalent?