Question 1

An initial $1,800 investment was worth $2120.31 after two years and nine months.
What quarterly compounded nominal rate of return did the investment earn?

Accepted Answer

The answer of An initial $1,800 investment was worth $2120.31...

Question 2

One year ago, $13,000 was invested in units of a mutual fund. The units paid a distribution of $260 during the year, but the mutual fund units are now worth only $11,400. What has been the:
a. Income yield?
b. Capital gain yield?
c. Rate of total return?

Accepted Answer

The answer of One year ago, $13,000 was invested in...

Question 3

An investment earned 5.8% compounded monthly for 6 years, and then 3.8% compounded quarterly for another 4. Determine the annual rate of interest per year compounded annually.

Accepted Answer

A)  4.01 
B)  4.11 
C)  5.01 
D)  5.11 
E)  5.21

Question 4

An effective rate of 6.6% (based on quarterly compounding) has a higher nominal rate than an effective rate of 6.5% (based on monthly compounding).

Accepted Answer

A) True 
 B)False

Question 5

The population of Canada grew from 24,343,000 in 1981 to 34,880,500 in 2012. What was the overall compound annual rate of growth in our population during the period?

Accepted Answer

The answer of The population of Canada grew from 24,343,000...

Question 6

An investment of $7,500 at 8% compounded monthly is now worth $13,280. How long ago was the investment made?

Accepted Answer

A)  12 years, 9 months 
B)  11 years, 2 months 
C)  9 years, 9 months 
D)  8 years, 6 months 
E)  7 years, 2 months

Question 7

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 8

Calculate the term of the loan or investment:

Accepted Answer

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

Question 9

The Consumer Price Index (based on a value of 100 in 1986) rose from 67.2 in 1980 to 119.5 in 1990. What was the (equivalent) annual rate of inflation in the decade of the 1980s?

Accepted Answer

The answer of The Consumer Price Index (based on a...

Question 10

In June of 2012, AIC Limited published full-page advertisements focused on the fact that its AIC Advantage Mutual Fund was Canada's "Best Performing Canadian Equity Fund over the 20 years" ending May 31, 2012. The equivalent annual rate of return during the 20 years was 11.9% compared to 9.9% for the benchmark S&P/TSX Composite Total Return Index. But the advertisement failed to point out that during the second half of that 20-year period, the fund's 9.4% compounded annual return was actually less than the 10.2% growth rate for the S&P/TSX Composite Total Return Index. Furthermore, in the final 5 years of the 20-year period, the fund's 2.4% annual rate of return was far below the index's 9.5% annual growth. The Advantage Fund's five-year performance was even less than the median performance of all Canadian equity mutual funds. In short, AIC was still trying to capitalize on the initial 10 years of truly outstanding performance, even though the Advantage Fund's subsequent 10 years' performance was at best mediocre.
a) What would $10,000 invested in the AIC Advantage Fund on May 31, 1992 have grown to after 20 years?
b) What was this investment worth after the first 10 years?
c) What compound annual rate of return did the AIC Advantage Fund earn during the first 10 years of the 20-year period?
d) What was the overall percent increase in the value of an investment in the AIC Advantage Fund during: (i) The first 10 years?
(ii) The second 10 years?

Accepted Answer

The answer of In June of 2012, AIC Limited published...

Question 11

A trust company pays 5.375% compounded annually on its 5-year GICs. What semiannually compounded nominal interest rate would provide the same maturity value?

Accepted Answer

The answer of A trust company pays 5.375% compounded annually...

Question 12

Rounded to the nearest month, how long will it take money to lose one-third of its purchasing power if the annual inflation rate is 3%?

Accepted Answer

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

Question 13

A portfolio earned 20%, 15%, -10%, 25%, and -5% in five successive years. What was the portfolio's five-year equivalent annually compounded rate of return?

Accepted Answer

The answer of A portfolio earned 20%, 15%, -10%, 25%,...

Question 14

What monthly compounded rate is equivalent to 6% compounded quarterly?

Accepted Answer

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

Question 15

Smoking among young adults has decreased by 34% over the past 16 years. Determine the average annual rate of decline.

Accepted Answer

A)  -3.42% 
B)  -2.56% 
C)  -2.09% 
D)  -1.98% 
E)  -1.60%

Question 16

If an interest rate of 6.9% compounded semiannually is charged on a car loan, what effective rate of interest should be disclosed to the borrower?

Accepted Answer

The answer of If an interest rate of 6.9% compounded...

Question 17

Calculate the effective annual rate for 19.2% compounded semi-annually.

Accepted Answer

A)  21.72% 
B)  20.12% 
C)  23.44% 
D)  22.72% 
E)  19.94%

Question 18

At the end of 2012, the Trans IMS Canadian Growth Fund had one of the worst 10-year compound annual returns of any Canadian diversified equity mutual fund. The fund's annual returns in successive years from 2000 to 2009 inclusive were -12.8%, -38.3%, -24.1%, 25.4%, 9.2%, 18.6%, 12.0%, -0.2%, -38.5%, and 15.6%, respectively. For 3-year, 5-year, and 10-year periods ended December 31, 2012, what was the fund's equivalent annually compounded return?

Accepted Answer

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

Question 19

An investment earned 6% compounded semiannually for two years and 8% compounded annually for the next three years. What was the equivalent annually compounded rate of return for the entire five-year period?

Accepted Answer

The answer of An investment earned 6% compounded semiannually for...

Question 20

What monthly compounded nominal rate would put you in the same financial position as 5.5% compounded semiannually?

Accepted Answer

The answer of What monthly compounded nominal rate would put...

Exam 9: Compound Interest: Further Topics and Applications

An initial $1,800 investment was worth $2120.31 after two years and nine months. What quarterly compounded nominal rate of return did the investment earn?

One year ago, $13,000 was invested in units of a mutual fund. The units paid a distribution of $260 during the year, but the mutual fund units are now worth only $11,400. What has been the: a. Income yield? b. Capital gain yield? c. Rate of total return?