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Exam 8: Compound Interest: Future Value and Present Value

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Question 61

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Maria invested $1,200 at 3.25% compounded monthly. After six months, the rate changed to 3.5% compounded quarterly. How much interest will Maria earn after four years?

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Question 62

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What is the maturity value of a $12,000 loan for 18 months at 5.2% compounded quarterly? How much interest is charged on the loan?

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Maturity Value = $12...

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Question 63

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CompuSystems was supposed to pay a manufacturer $19,000 on a date 4 months ago and another $14,000 on a date two months from now. CompuSystems is proposing to pay $10,000 today and the balance in 5 months, when it will receive payment on a major sale to the provincial government. What will the second payment be if the manufacturer requires 6% compounded monthly on overdue accounts?

Two payments of $850 and $600 must be made two years and five years from now respectively. If money can earn 4% compounded semi-annually, what single payment, three years from now, would be equivalent to the two scheduled payments?

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

On the same date that the CIBC advertised rates of 2%, 2.5%, 3%, 3.25%, and 7% in successive years of its five-year compound-interest Escalating Rate GIC, it offered 2.75% compounded annually on its five-year fixed-rate GIC. How much more will a $10,000 investment be worth at maturity if the Escalating Rate GIC is chosen instead of the fixed-rate GIC?

A $7,500 loan at 9% compounded monthly requires three payments at 5-month intervals after the date of the loan. The second payment is to be twice the size of the first payment, and the third payment is to be double the amount of the second payment. Calculate the size of the second payment.

Calculate the original principal:

Consider a $10,000 face value strip bond that yields the buyer 4.60% compounded semi-annually that matures on June 1, 2023. Assume the yield does not change as years go by. a) What will be the bond's value on December 1, 2014? b) What will be the bond's value on December 1, 2018? c) Suppose you invest an amount equal to the answer from Part (a) at 4.60% compounded semi-annually for four years. What will its maturity value be? d) To three-figure accuracy, why do you get the same answers for Parts (b) and (c)?

A $1,000 face value strip bond has 19 years remaining until maturity. What is its price if the market rate of return on such bonds is 3.9% compounded semi-annually?

A loan of $4,000 at 7.5% compounded monthly requires three payments of $1,000 at 6, 12, and 18 months after the date of the loan and a final payment of the full balance after 2 years. What is the amount of the final payment?

Commercial Finance Co. buys conditional sale contracts from furniture retailers at discounts that provide a 16.5% compounded monthly rate of return on the purchase price. What total price should Commercial Finance pay for the following three contracts: $950 due in 4 months, $780 due in 6 months, and $1,270 due in 5 months?

First Dominion Bank offers a two-year "Rising Rate" GIC. For the first year the interest rate is 4.5% compounded semi-annually and for the second year the rate is 5.5% compounded semi-annually. What will be the maturity value of a $50,000 two-year "Rising Rate" GIC?

A loan of $10,000 is being taken out today. The interest rate is 9% compounded monthly. Equal payments are to be made two and five years from now. After the second payment is made in five years there will be a balance of $3,000 still owing on the loan. Calculate the size of the two equal payments.

If an investor has the choice between rates of 5.5% compounded semi-annually and 5.6% compounded annually for a six-year GIC, which rate should be chosen?

What is the nominal rate of interest if the periodic rate is: a) 0.0025 per month? b) 4.8% per year?

You owe $6,000 payable three years from now. What alternative amount should your creditor be willing to accept today if she can earn 2.1% compounded monthly on a low-risk investment?

Judy invested $8,500 in a three-year compound-interest GIC earning 6% compounded monthly. What is the GIC's maturity value?

If a 30-year, $10,000 strip bond is issued at a yield rate of 5.75% compounded semi-annually, what is its issue price?

What total interest will be earned by $5,000 invested at 5.4% compounded monthly for 3½ years?