Question 1

Albert Greco paid $1,974 for a $10,000 strip bond 16 years before it reached maturity. What semi-annually compounded nominal rate will Albert earn on his investment?

Accepted Answer

A)   11.78%
B)   3.17%
C)   5.22%
D)   10.67%
E)   10.40% E

Question 2

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 A

Question 3

Neil's common stock portfolio increased in value over a two-month period from $78,900 to $84,300. What were the simple and effective annualized rates of total return over the period?

Accepted Answer

Simple = 41.06% and Effective annualized = 48.77%

Question 4

What is the effective interest rate corresponding to a nominal annual rate of:
a. 4% compounded monthly?
b. 8% compounded monthly?
c. 12% compounded monthly?

Accepted Answer

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

Question 5

When discounted to yield 9.5% compounded quarterly, a $4500 four-year promissory note bearing interest at 11.5% compounded semiannually was priced at $5697.84. How long after the issue date did the discounting take place?

Accepted Answer

The answer of When discounted to yield 9.5% compounded quarterly,...

Question 6

Enrique wants to borrow $15,000 for a new car. The bank has personal loans at 5.25% compounded monthly, whereas the credit union at his company is offering personal loans at 5.5% compounded annually. Which should Enrique accept?

Accepted Answer

The answer of Enrique wants to borrow $15,000 for a...

Question 7

A department store currently charges an effective rate of 18% on its credit card. The store wants to add .25% per month to its monthly compounded rate. What new monthly compounded rate will the store charge?

Accepted Answer

The answer of A department store currently charges an effective...

Question 8

An investor's portfolio increased in value by 53% over a five-year period while the Consumer Price Index rose from 121.6 to 135.3. What was the portfolio's annually compounded real rate of return?

Accepted Answer

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

Question 9

Your client wants to invest a $250,000 inheritance and grow it to $325,000. Rounded to the nearest month, how long will this take if the investment earns 7% compounded annually?

Accepted Answer

The answer of Your client wants to invest a $250,000...

Question 10

An $1,100 investment earning 6.3% compounded annually grew to $4,483.92. What was the term of the investment?

Accepted Answer

The answer of An $1,100 investment earning 6.3% compounded annually...

Question 11

For three successive years, an investment paid annual rates of return of 5.8%, 3.4%, and -2.25%. Calculate the funds equivalent annually compounded rate of return over the three years.

Accepted Answer

The answer of For three successive years, an investment paid...

Question 12

What semiannually compounded rate is equivalent to 4% compounded monthly?

Accepted Answer

The answer of What semiannually compounded rate is equivalent to...

Question 13

A $50,000 GIC will earn $70,000 of interest over its 10-year term. What is the monthly compounded nominal rate of interest?

Accepted Answer

A)   7.32%
B)   9.15%
C)   3.37%
D)   8.79%
E)   3.42%

Question 14

Calculate the term of the loan or investment:

Accepted Answer

The answer of Calculate the term of the loan or...

Question 15

How long before a future payment of $1,000 would a payment of just $100 be an economically equivalent alternative? Round your answer to the nearest month. Assume money can earn 4.8% compounded semiannually.

Accepted Answer

The answer of How long before a future payment of...

Question 16

15 years ago, Alyssa made an initial deposit of $5,000 along with quarterly contributions in an investment earning 6.1% compounded monthly. 10 years ago, she deposited another lump sum of $25,000 in another investment. If her cumulative investments were $100,000 at the end of the 15 years, determine the rate of interest earned on the second investment based on annual compounding.

Accepted Answer

A)   4.05%
B)   4.15%
C)   4.30%
D)   4.55%
E)   5.05%

Question 17

For the effective rate to be 7%, what must be the corresponding nominal interest rate with:
a. annual compounding?
b. semiannual compounding?
c. quarterly compounding?
d. monthly compounding?

Accepted Answer

The answer of For the effective rate to be 7%,...

Question 18

If the Consumer Price Index rose by 1% over a two-month period, what were the simple and effective annualized rates of inflation during the two-month period?

Accepted Answer

The answer of If the Consumer Price Index rose by...

Question 19

A bank offers a rate of 5.0% compounded semiannually on its four-year GICs. What monthly compounded rate should the bank offer on four-year GIC's to make investors indifferent between the alternatives?

Accepted Answer

The answer of A bank offers a rate of 5.0%...

Question 20

Rounded to the nearest month, how long will it take money to lose half of its purchasing power if the annual inflation rate is:
a) 2.5%
b) 3.5%

Accepted Answer

The answer of Rounded to the nearest month, how long...

Exam 9: Compound Interest: Further Topics and Applications