Question 1

Manuel begins investing $700 per month for 4 years in an account earning 3.8% compounded annually. At the end of this time, he makes a $20,000 lump sum deposit on top of the accumulated investment into another account. At the end of 5 years, this amount has accumulated to $84,000. Based on monthly compounding, determine what the rate of interest that will achieve this goal.

Accepted Answer

A)  8.01% 
B)  8.28% 
C)  8.13% 
D)  8.33% 
E)  8.97%

Question 2

Vitaly's shares of Dominion Petroleum have dropped in value from $36.75 to $32.25 during the past year. The shares paid a $0.50 per share dividend 6 months ago. Calculate Vitaly's income yield, capital gain yield, and rate of total return for the year.

Accepted Answer

The answer of Vitaly's shares of Dominion Petroleum have dropped...

Question 3

Patty Lo purchased a house that she planned to use as a rental property for $300,000. During the past year, she rented the house for $1750 per month. Property taxes were $3900 for the year, and other expenses were $450 for a new garage door opener and $650 for lawn care. The current appraised value of the property is $315,000. What is Patty Lo's income yield?

Accepted Answer

A)  7% 
B)  5.7% 
C)  5.6% 
D)  5.3% 
E)  6.6%

Question 4

Find the monthly compounded nominal interest rate that is equivalent to an effective rate of 21%.

Accepted Answer

A)  1.75% 
B)  23.144% 
C)  1.929% 
D)  19.214% 
E)  1.601%

Question 5

For a three-year GIC investment, what nominal rate compounded monthly would put you in the same financial position as 5.5% compounded semiannually?

Accepted Answer

The answer of For a three-year GIC investment, what nominal...

Question 6

The price of Biomed Corp. shares began a two-year period at $12, but fell 25% in each year. What was their overall percent decline in price?

Accepted Answer

The answer of The price of Biomed Corp. shares began...

Question 7

If the holding-period return on a money market mutual fund for the most recent seven days is 0.081%, what current (simple) yield and effective annualized yield will be quoted for the fund in the financial media?

Accepted Answer

The answer of If the holding-period return on a money...

Question 8

Lansky Finance Company was charging 1.87% per month on overdue accounts but negative publicity and public pressure made them decide to reduce the rate. What monthly finance charge would result in an annual effective rate of 19.99%?

Accepted Answer

A)  1.80% 
B)  1.67% 
C)  1.53% 
D)  1.42% 
E)  1.37%

Question 9

One year ago, Christos bought 1,000 units of the Dominion Aggressive Growth Fund at $20.35 per unit. Today a unit's value is $19.10. During the year, the fund made a distribution of $0.40 per unit. On this investment, what is Christo's:
a) Income yield?
b) Capital gain yield?
c) Total return in dollars?
d) Rate of total return?

Accepted Answer

The answer of One year ago, Christos bought 1,000 units...

Question 10

Calculate nominal rate of interest (to the nearest 0.01%):

Accepted Answer

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

Question 11

The population of a mining town declined from 17,500 to 14,500 in a five-year period. If the population continues to decrease at the same compound annual rate, how long, to the nearest month, will it take for the population to drop by another 3,000?

Accepted Answer

The answer of The population of a mining town declined...

Question 12

Rounded to the nearest month, calculate how long it will take for $1,000 to decline to $643.68 due to a 5.2% inflation rate.

Accepted Answer

A)  9 years and 6 months 
B)  9 years and 3 months 
C)  8 years and 9 months 
D)  8 years and 6 months 
E)  8 years and 3 months

Question 13

A $100 investment purchased one year ago is now worth $90. It also generated $10 of income during the year. Determine the investment's:
a. Income yield
b. Capital gain yield
c. Rate of total return

Accepted Answer

The answer of A $100 investment purchased one year ago...

Question 14

For a two-year GIC, what nominal rate compounded quarterly would pay the same amount of interest as 3.8% compounded annually?

Accepted Answer

The answer of For a two-year GIC, what nominal rate...

Question 15

If the Consumer Price Index rose by 0.5% 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 16

According to Statistics Canada, undergraduate students paid an average of $5581 in tuition fees for the 2012/2013 academic year compared to fees of $4747 for the 2008/2009 year. During the same period, the Consumer Price Index rose from 115.7 to 122.0.
a) What would have been the average tuition fees for the 2012/2013 year if tuition fees had grown just at the rate of inflation since the 2008/2009 year?
b) What was the (equivalent) compound annual rate of increase of tuition fees during the period?
c) What was the (equivalent) compound annual rate of inflation during the period?

Accepted Answer

The answer of According to Statistics Canada, undergraduate students paid...

Question 17

What is the effective interest rate corresponding to a nominal annual rate of:
a. 7.5% compounded semiannually?
b. 7.5% compounded quarterly?
c. 7.5% compounded monthly?

Accepted Answer

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

Question 18

Rose purchased units of the Trimark Fund 1 year ago at $24.10 per unit. Today they are valued at $25.50. On the intervening December 31, there was a distribution of $0.83 per unit. ("Distribution" is the term used by most mutual funds for income paid to unit holders.) Calculate Rose's income yield, capital gain yield, and rate of total return for the year.

Accepted Answer

The answer of Rose purchased units of the Trimark Fund...

Question 19

Mr. and Mrs. Markovich note that the home they purchased 20 years ago for $70,000 is now appraised at $340,000. What was the (equivalent) annual rate of appreciation in the value of their home during the 20-year period?

Accepted Answer

The answer of Mr. and Mrs. Markovich note that the...

Question 20

Martha is planning her retirement in 10 years' time. She contributes a lump sum deposit of $10,000 now in a plan earning 5.4% compounded semi-annually. Two years later, she will deposit $20,000 in another investment earning 4.8% compounded monthly. In the final 5 years, she plans on contributing $1,000 per month. Based on quarterly compounding, determine what the rate of interest will be on the final investment if she wishes to end up with $112,000.

Accepted Answer

A)  5.16% 
B)  4.85% 
C)  4.12% 
D)  3.61% 
E)  2.48%

Exam 9: Compound Interest: Further Topics and Applications