Question 1

If a $15,000 investment grew to $21,805 in 4½ years of quarterly compounding, what effective rate of return was the investment earning?

Accepted Answer

The answer of If a $15,000 investment grew to $21,805...

Question 2

If the holding-period return on a money market mutual fund for the most recent seven days is 0.097%, what current (simple) and effective annualized yields will be quoted for the fund in the financial media?

Accepted Answer

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

Question 3

Over nine years Craig earned interest of $29,700 on an investment of $16,000. What effective rate of return did he earn?

Accepted Answer

A)  7.11% 
B)  9.44% 
C)  10.92% 
D)  12.37% 
E)  13.56%

Question 4

The proceeds of a $9,000 8-year promissory note earning 5% compounded semi-annually were $10,474. How many years before maturity date was the note sold if the discounted rate was 7.2% compounded annually.

Accepted Answer

A)  3.5 years 
B)  4.5 years 
C)  5.5 years 
D)  6.5 years 
E)  7.5 years

Question 5

How long will it take a $1,000 investment to grow to $1500 if it earns 3.8% compounded annually?

Accepted Answer

The answer of How long will it take a $1,000...

Question 6

The federal government cut transfer payments to the provinces by a total of 20% over a five-year period. In the next budget speech, the Minister of Finance announced "the level of transfer payments will be restored to their former level by a 20% increase to be phased in over the next two years." Is this an accurate statement? Explain briefly.

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Question 7

A credit card company wishes to reduce its effective interest rate by 4%. It currently charges a periodic rate of 1.75% per month. Determine by what amount the company should it set its new monthly periodic rate.

Accepted Answer

A)  1.17% 
B)  1.27% 
C)  1.37% 
D)  1.47% 
E)  1.57%

Question 8

Last year, Kristina purchased a new condominium in downtown Toronto for $450,000 and used the property for rental income. During the past year, she rented the condo for $2200 per month. Property taxes were $4500 for the year, and there were no other expenses. The current appraised value of the property is the same as the purchase price. What is Kristina's rate of total return?

Accepted Answer

A)  5.9% 
B)  6.3% 
C)  4.75% 
D)  4.9% 
E)  5.5%

Question 9

Over six years Craig earned interest of $8,400 on an investment of $20,000. What effective rate of return did he earn?

Accepted Answer

A)  15.56% 
B)  6.02% 
C)  7.00% 
D)  11.53% 
E)  14.71%

Question 10

The Calgary Real Estate Board reports that house prices increased by 5% during the first seven months of the year. If prices continue to rise at the same rate for the subsequent five months, what will be the (compound) increase for the entire year?

Accepted Answer

The answer of The Calgary Real Estate Board reports that...

Question 11

What is meant by the effective rate of interest?

Accepted Answer

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Question 12

Determine the equivalent nominal rate of interest compounded monthly, as 8.4% compounded quarterly.

Accepted Answer

A)  8.34% 
B)  8.67% 
C)  9.04% 
D)  9.16% 
E)  9.34%

Question 13

9.1% compounded annually is a better investment than 8.8% compounded monthly.

Accepted Answer

A) True 
 B)False

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

After 27 months of quarterly compounding, a $3,000 debt had grown to $3,810. What effective rate of interest was being charged on the debt?

Accepted Answer

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Question 16

A $50,000 strip bond was discounted to $21,680. The market rate was 7.4% compounded semi-annually. How much time was left before the bond reached maturity?

Accepted Answer

A) 11.5 years 
B)  21.9 years 
C)  11.7 years 
D)  5.04 years 
E)  23 years

Question 17

A 30-year, Government of Canada $10,000 strip bond was discounted at 4.9% compounded semi-annually and traded for $4,722. How many years earlier had the bond been issued?

Accepted Answer

A)  14.5 years 
B)  15.0 years 
C)  15.5 years 
D)  29.0 years 
E)  30.0 years

Question 18

How long did it take $4,625 earning 4.875% compounded annually to grow to $6768.42?

Accepted Answer

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Question 19

Calculate the effective annual rate for 18% compounded annually.

Accepted Answer

A)  19.8% 
B)  16.8% 
C)  18.0% 
D)  19.0% 
E)  20.6%

Question 20

A semiannually compounded nominal rate and a monthly compounded nominal rate have the same effective rate. Which has the larger nominal rate? Explain.

Accepted Answer

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Exam 9: Compound Interest: Further Topics and Applications