Deck 8: Compound Interest: Future Value and Present Value

Question 1

What principal earning 16% compounded quarterly will grow to $8,500 after six years and three months?

A) $448.66
B) $22,659.61
C) $3,188.49
D) $3,361.68
E) $3,147.71

Answer 1

$3,188.49

Question 2

Calculate the present value of a payment of $27,500 payable in 10 years if money is worth 9% compounded semi-annually.

A) $29,723.88
B) $11,616.30
C) $11,402.68
D) $9,725.39
E) $8,899.11

Answer 2

$11,402.68

Question 3

Laurel borrowed some money from Hardy 42 months ago. The loan principal plus interest at 17% compounded annually is to be repaid today. Laurel and Hardy agree that the total amount due is $31,618. How much did Laurel borrow from Hardy 42 months ago?

A) $10,618.49
B) $13,367.12
C) $18,250.88
D) $23,157.32
E) $49,868.89

Answer 3

$18,250.88

Question 4

Calculate the maturity value of $18,559 after 7.5 years at 9% compounded quarterly.

A) $36,179
B) $31,086
C) $32,000
D) $53,776
E) $29,000

Question 5

Boris borrowed $500 five years ago. The interest rate on the loan was 9% compounded monthly for the first 27 months and 6% compounded quarterly for the rest of the time. How much does he owe now?

A) $878.27
B) $720.63
C) $846.92
D) $603.33
E) $751.90

Question 6

What amount was invested 35 years ago at 7% compounded semi-annually if the value of the investment has now grown to $1,000,000?

A) $634,757
B) $111,128
C) $103,549
D) $89,986
E) $57,637

Question 7

If you deposit $2,500 into an investment that grows at 13.2% compounded monthly, what will its value be in 17.5 years?

A) $24,870
B) $57,750
C) $21,890
D) $48,901
E) $16,211

Question 8

Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?

A) $63,276
B) $38,090
C) $55,461
D) $41,962
E) $55,759

Question 9

Helen's investment of $500 has grown, at a rate of 13% compounded annually, for 45 years. What is the maturity value of her investment?

A) $204,381
B) $129,667
C) $825
D) $82,592
E) $122,321

Question 10

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?

A) $$441,889B)$$ 539,731
C) $299,057
D) $752,198
E) $135,067

Question 11

What amount today is equivalent to $6,800 three years ago, if money earned 12% compounded quarterly over the past three years?

A) $8,872.46
B) $9,553.51
C) $9,695.17
D) $9,729.23
E) $4,769.38

Question 12

Betty borrowed $50 from Chuckie for 2 years at 9% compounded monthly. How much did she owe at the end of the two years?

A) $19.83
B) $59.82
C) $67.88
D) $54.16
E) $63.71

Question 13

Everyone thought he was being foolish again when, 65 years ago, great-great-uncle Crazy Louie invested $150 in the common stock of a company that produced a carbonated soft drink in Atlanta Georgia. The value of the stock has grown at an average rate of 15% compounded semi-annually. What's the value of Crazy Louie's foolish investment now?

A) $13,559,733
B) $5,872,556
C) $1,816,317
D) $925,767
E) $146,250

Question 14

Murphy's annual income has increased by 10% per year for the last 8 years. If Murphy's annual income is now $72,596, what was it 8 years ago?

A) $14,519
B) $33,867
C) $41,587
D) $51,922
E) $58,077

Question 15

Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investment 1 earns 15% compounded annually, and investment 2 earns 10% compounded annually?

A) Investment 1 is steeper and the graph is growing at a faster rate.
B) Investment 2 is steeper and the graph is growing at a faster rate.
C) Investment 1 is steeper and the graph is growing at a slower rate.
D) Investment 2 is steeper and the graph is growing at a slower rate.
E) The two graphs look the same as they are both compounding interest.

Question 16

What is the maturity value of a $3,500 loan for 15 months at 12% compounded quarterly?

A) $3,019.13
B) $5,452.89
C) $4,063.39
D) $4,258.29
E) $4,057.46

Question 17

If Smitty is able to earn 11% compounded semi-annually on his $750 investment, how much money will he have in 40 years?

A) $48,751
B) $54,357
C) $73,825
D) $89,324
E) $7,979

Question 18

Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investments earn 5% nominal rate, but investment 1 is compounded monthly and investment 2 is compounded semi-annually?

A) Investment 1 is steeper and the graph is growing at a faster rate.
B) Investment 2 is steeper and the graph is growing at a faster rate.
C) Investment 1 is steeper and the graph is growing at a slower rate.
D) Investment 2 is steeper and the graph is growing at a slower rate.
E) The two graphs look the same as they are both compounding interest.

Question 19

How much money would have to be invested today, at 9% compounded monthly in order to have $40,000 in seven years?

A) $21,353.81
B) $23,726.43
C) $33,786.03
D) $34,928.08
E) $5,071.92

Question 20

Twenty years ago Freddie invested $2,000. For the first 10 years he earned 13% compounded semi-annually. For the next 10 years he earned 8% compounded quarterly. What was the value of the investment now, at the end of the 20 years?

A) $5,927
B) $9,185
C) $17,292
D) $14,732
E) $15,561

Question 21

Adel borrowed $6,500, 2 ½ years ago. She made a $800 payment 18 months ago. Using the financial functions on the calculator, determine how much she has to pay now if interest is 6.2% compounded monthly?

A) $6,128.21
B) $6,235.48
C) $6,708.99
D) $6,489.55
E) $6,656.47

Question 22

Debbie has two promissory notes payable to her. The first one will mature in five years at $42,371 and the second one will mature in eight years at $78,529. What amount can she expect to receive from the Lansky Finance Company if, one year from now, she sells both of the notes to them at a discount rate of 19% compounded annually?

A) $37,283
B) $44,367
C) $78,154
D) $39,028
E) $57,413

Question 23

Twenty-five years ago Sandy invested $3,000. Fifteen years ago she put another $2,000 into the investment. Over the 25 years, interest has accumulated at a rate of 6% compounded monthly. How much interest has she earned over the 25 years?

A) $18,303
B) $6,567
C) $5,134
D) $11,567
E) $13,303

Question 24

If Murphy puts $45,000 into an investment that earns 12% compounded monthly, and after three years he withdraws $30,000, how much money will the investment be worth seven years after the withdrawal?

A) $79,316
B) $49,506
C) $92,142
D) $69,202
E) $118,517

Question 25

$3,500 borrowed one year ago, is to be settled by payments of $500 today, $1,500 six months from now, and a final payment eighteen months from now. What is the amount of the final payment if the interest rate on the loan is 12% compounded monthly?

A) $3,625.31
B) $1,500.00
C) $7,005.78
D) $1,427.01
E) $2,429.16

Question 26

Doris is retiring today and she plans to buy a new car for $25,000 seven years from now and a second new car for $40,000 seventeen years from now. How much "new car money" should she set aside now if she can expect to earn 8½% compounded annually on her savings?

A) $42,515
B) $31,879
C) $24,421
D) $24,118
E) $16,590

Question 27

A company borrowed $50,000 at 12% compounded monthly. It made a payment of $15,000 after two years, and $12,000 after three years. How much is required to pay off the loan one year after the second payment?

A) $17,432.08
B) $42,636.06
C) $29,799.41
D) $48,043.38
E) $80,611.30

Question 28

Two payments of $7,500 each must be made three years and six years from now. If money can earn 8.4% compounded monthly, what single payment, four years from now, would be equivalent to the two scheduled payments?

A) $13,218
B) $18,638
C) $15,501
D) $14,499
E) $22,034

Question 29

Andy borrowed money four years ago at 13.2 % compounded monthly. He now owes a total of $13,743. How much of this is interest?

A) $8,129
B) $7,114
C) $5,614
D) $9,492
E) $11,611

Question 30

Nancy deposits $22,000 in an investment account earning 4.2% interest annually. In addition, she plans on withdrawing $4,000, $6,000 and $8,000 over a three-year period. Using the financial functions on the calculator, determine how much Nancy will have remaining at the end of year 3.

A) $6,404
B) $6,378
C) $6,295
D) $6,267
E) $6,006

Question 31

Eighteen years from now I will need to have $120,000 to pay for my child's post-secondary education. I anticipate being able to earn 14% compounded annually for the first 10 years and 11% compounded annually for years #11 through #20. What amount of money should I invest today in order to meet my goal?

A) $14,046
B) $16,380
C) $21,750
D) $29,600
E) $30.790

Question 32

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?

A) $1,477.16
B) $1,609.22
C) $15,783.88
D) $1,404.19
E) $1,438.65

Question 33

A $10,000 eight-year investment earns interest at 12% compounded semi-annually. If it is sold 30 months before maturity to yield 16% compounded quarterly, what is its selling price?

A) $17,161.71
B) $6,755.64
C) $10,719.15
D) $4,219.55
E) $20,009.91

Question 34

A $7,000 non-interest-bearing promissory note is discounted at 10% compounded quarterly, two years before maturity. What are the proceeds from the sale of the note?

A) $6,829.27
B) $6,662.70
C) $5,785.12
D) $5,933.33
E) $5,745.23

Question 35

Today is Almo's 20^th birthday and he has just received a large amount of money to sign a contract with a professional hockey team. He wants to put away enough money to make sure that on his 50^th birthday he will have $2,500,000. For the next ten years he is confident that his investments will earn 15% compounded annually and after that, 10% compounded annually. How much must he invest today?

A) $761,545
B) $299,419
C) $117,674
D) $99,278
E) $91,856

Question 36

Jack invested $10,000 at 10% compounded annually for 35 years. Jill also invested $10,000 for 35 years but her interest rate was 11% compounded annually. How much MORE interest did Jill earn as compared to Jack?

A) $14,166
B) $55,632
C) $92,418
D) $104,724
E) $189,627

Question 37

Albert purchased Bonzo's car for $500 cash and a non-interest bearing promissory note for $2,000 payable in two years. How much money can Bonzo expect to receive for the note if he immediately sells it to Corleone Finance Company at a discount rate of 30% compounded monthly?

A) $383
B) $2,616
C) $1,617
D) $1,400
E) $1,106

Question 38

Assume money can earn 15% compounded semi-annually. Rank the following payments in order of the payee's first choice, second choice, and third choice, respectively: 10,000 paid today, $20,000 to be paid five years from today, or $13,500,000 to be paid fifty years from today.

A) $10,000; $20,000; $13,500,000
B) $10,000; $13,500,000; $20,000
C) $13,500,000; $10,000; $20,000
D) $13,500,000; $20,000; $10,000
E) $20,000; $13,500,000; $10,000

Question 39

Amanda borrowed $1,500, $3,500 and $5,000 at the beginning of each year. The rate of interest was at 4.8% compounded monthly. Using the financial functions on the calculator, determine the value that must be repaid at the end of year 3.

A) $10,829.10.
B) $11,034.67
C) $11,464.22
D) $11,829.67
E) $12,318.54

Question 40

Fred borrowed money 18 months ago at 12% compounded semi-annually. He now owes a total of $5,450. How much of this is interest?

A) $874.07
B) $893.71
C) $767.67
D) $3,540.63
E) $1,041.04

Question 41

A payment of $8,000 is due on May 15, 2023. What was the value of this obligation on May 15, 2008 if money can earn 12% compounded quarterly between the two dates?

A) $26,096.30
B) $5,952.75
C) $1,666.31
D) $2,452.45
E) $1,357.865

Question 42

Kramer borrowed $6,000 from George at an interest rate of 6% compounded quarterly. The loan is to be repaid by three payments. A payment of $2,000 is due two years after the date of the loan. The second and third payments are to be of equal amounts and are to be paid three and five years after the date of the original loan. Calculate the size of the last two payments.

A) $2,481.63
B) $2.406.52
C) $2,675.71
D) $2,277.43
E) $2,197.91

Question 43

Calculate the maturity value of a five-year, $400,000 Guaranteed Investment Certificate at accumulating at 6% compounded quarterly.

A) $538,742
B) $696,988
C) $880,000
D) $903,443
E) $994,001

Question 44

Calculate the maturity value of a two-year, $20,000 Guaranteed Investment Certificate accumulating at 5% compounded semi-annually.

A) $18,119
B) $20,000
C) $22,076
D) $23,612
E) $24,310

Question 45

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.

A) $4,790.21
B) $5,482.35
C) $5,692.38
D) $6,014.19
E) $4,747.27

Question 46

A $25,000 obligation is to be repaid by two payments. The first payment is one year from now, while the second is 2 years from now. In addition, the second payment will be twice the amount of the first. Interest is 6.65% compounded annually. Using the financial functions on the calculator, determine the size of each payment.

A) Payment #1 = $8,887.50; Payment #2 = $17,775
B) Payment #1 = $5,550.50; Payment #2 = $11,101
C) Payment #1 = $8,500; Payment #2 = $17,000
D) Payment #1 = $10,000.50; Payment #2 = $20,001
E) Payment #1 = $17,775; Payment #2 = $8,887.50

Question 47

In order to pay off a debt that he took out today, Roger will have to make a payment of $3,500 in 15 months and $5,500 in 36 months. The interest rate is 8% compounded quarterly. What is the total amount of interest that is included in these payments?

A) $1,016.39
B) $1,493.23
C) $2,287.88
D) $7,506.77
E) $1,839.61

Question 48

A $25,000 loan at 9% compounded monthly is to be repaid by two equal payments due 1.5 years and 2.5 years after the date of the loan. What is the size of each payment?

A) $11,939.97
B) $14,940.15
C) $15,015.33
D) $18,266.18
E) $22,855.95

Question 49

How much interest would be earned on a 10-year $117,000 Guaranteed Investment Certificate that grows at 9% compounded monthly?

A) $126,360
B) $159,982
C) $169,809
D) $276,981
E) $286,808

Question 50

A bank offers a four-year "Escalating Rate GIC" on which the interest rate for year one is 3% compounded annually, 4% compounded annually for year two, 5% compounded annually for the third year and 6% compounded annually for the fourth year. Determine the maturity value of a $100,000 four-year "Escalating Rate GIC".

A) $116,794
B) $117,251
C) $118,704
D) $118,933
E) $119,225

Question 51

Leo's Furniture is offering a "houseful of furniture" for $7,777. Furthermore, if you make a down payment of $777 you can wait for 2½ years to pay the $7,000 balance. If Leo's Furniture immediately sells the $7,000 receivable contract to the Corleone Finance Group at a discount rate of 24% compounded monthly, how much money will Leo's actually receive for the "houseful of furniture"?

A) $3,864.50
B) $4,255.53
C) $4,641.50
D) $5,679.53
E) $6,897.50

Question 52

Payments of $2,000 due six months ago and $5,000 due three years from now, are to be replaced by two equal payments due now and one year from today. What is the amount of each payment if money is worth 12% compounded monthly? Use a focal date of today.

A) $3,118.98
B) $2,641.34
C) $2,976.33
D) $4,915.04
E) $3,211.14

Question 53

Five years ago Sylvio borrowed $12,000 from Warren at 11% compounded annually. Two years ago he made a payment of $7,000 to reduce his debt. Now how much, including interest, does Sylvio owe to Warren?

A) $14,339
B) $11,596
C) $9,217
D) $7,675
E) $5,972

Question 54

Manuel deposits $35,000 into an investment account earning 3.9% interest compounded annually. The purpose of this deposit is for Manuel to withdraw $700 per month as an allowance during his 4 years of university. In addition, he wishes to have some money left in the account after the 4-year time period. Using the financial functions on the calculator, determine the amount of remaining after his education is completed.

A) $8,285.45
B) $7,890.56
C) $6,244.12
D) $5,125.84
E) $4,538.38

Question 55

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

A) $7,102.98
B) $10,102.98
C) $10,123.64
D) $9,897.02
E) $10,171.78

Question 56

Tyrone wishes to save $35,000 in 5 years' time. In the last 2 years, he will contribute $125 per quarter in an account earning 3.6% compounded monthly. In the middle 2 years, he will contribute $75 per month with the same monthly contributions. He plans to contribute $1,000 semi-annually during the first year, in the same account. Using the financial functions on the calculator, determine the initial deposit to be made by Tyrone if he wishes to have $35,000 in his account in 5 years.

A) $24,918.90
B) $24,990.11
C) $25,105.13
D) $25,427.15
E) $25,681.18

Question 57

What regular interest payment will Grandmamma receive from a seven-year, $1,750,000 monthly payment GIC earning a nominal rate of 5.4% compounded monthly?

A) $30,378
B) $21,767
C) $9,544
D) $7,875
E) $6,450

Question 58

What periodic payment will an investor receive from a six-year, $90,000 monthly payment GIC earning a nominal rate of 4.2% compounded monthly?

A) $378
B) $315
C) $292
D) $266
E) $188

Question 59

What periodic payment will an investor receive from a 10-year, $250,000 annual payment GIC earning a nominal rate of 5.88% compounded annually?

A) $7,600
B) $5,698
C) $19,267
D) $12,250
E) $14,700

Question 60

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) $51,770
B) $52,500
C) $55,000
D) $55,190
E) $57,765

Question 61

Four years after it was first issued at 6% compounded semi-annually, a 25-year, $10,000 strip bond was sold on the bond market at a price that would provide the purchaser with a yield rate of 4.8% compounded semi-annually. What was the selling price at that time?

A) $2,281
B) $2,667
C) $2,890
D) $3,693
E) $3,736

Question 62

Scotia Bank offers a 4-year rate raiser RRSP. The annual compound rates are 2.5%, 3.2%, 3.8% and 4.2%. Determine the average annual rate of interest earned during the four year period.

A) 3.423%
B) 4.323%
C) 5.156%
D) 6.571%
E) 7.676%

Question 63

Today, in Brazil, there are 462,966 people in prison. The prison population there has been decreasing at a rate of 1.9% per year for the last 10 years. How many prisoners were there in Brazil 10 years ago?

A) 375,002
B) 560,866
C) 607,562
D) 558,844
E) 383,537

Question 64

A $1,000 face value compound-interest series S114 Canada Savings Bond was redeemed on March 8, 2013. What amount did the bond's owner receive? (Obtain the issue date and the interest rates paid on the bond from Table 8.2)

A) $1,567.23
B) $1,037.62
C) $1,073.26
D) $1, 053.89

Question 65

A 30-year, $1,000 strip bond was issued by Sun Oil Company at a yield rate of 8.8% compounded semi-annually. How much money did Sun Oil borrow by issuing this bond?

A) $17.50
B) $75.50
C) $755.00
D) $1,000.00
E) $1,750.55

Question 66

The number of people working in service industries in British Columbia has been growing at a rate of 4% per year for eight years. Today there are 1.86 million service workers in B.C. How many were there five years ago?

A) 1.09 million
B) 2.26 million
C) 1.49 million
D) 1.53 million

Question 67

A 25-year, $10,000 strip bond was first issued at 6% compounded semi-annually. Nine years before maturity it was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.8% compounded semi-annually. What was the selling price at that time?

A) $3,430
B) $3,883
C) $5,478
D) $5,874
E) $6,246

Question 68

A 30-year, $10,000 strip bond was originally issued at 5% compounded semi-annually. Ten years later the original purchaser sold the bond at the prevailing market rate at that time which was 7% compounded semi-annually. How much profit did the original purchaser earn over the 10 years?

A) $(1,198) Loss
B) $253 Profit
C) $806 Profit
D) $1,451 Profit
E) $2,000 Profit

Question 69

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?

A) $349
B) $978
C) $993
D) $1,869
E) $1,826

Question 70

On the day it was issued, Aaron bought a 30-year, $1,000 strip bond at a market rate of 6% compounded semi-annually. Four years later he sold it to Zevon at the market rate of 7% compounded semi-annually. What was Aaron's profit or loss?

A) ($6.91) Loss
B) ($2.58) Loss
C) $0.00
D) $2.58 Profit
E) $6.91 Profit

Question 71

If the inflation rate for the next 20 years is 4% per year, what hourly rate of pay in 20 years will be equivalent to $10 per hour today?

A) $226.00
B) $14.56
C) $19.19
D) $21.91
E) $22.60

Question 72

A financial institution is offering a 3-year rate optimizer GIC with annual rates of 4.6%, 5.2% and 5.8%. If $10,000 was invested in the GIC, then determine the total interest earned at the end of the 3 year period.

A) $1,506.25
B) $1,642.15
C) $1,855.68
D) $2,106.24
E) $2,480.68

Question 73

A 25-year, $10,000 strip bond was issued at a market rate of 9.4% compounded semi-annually. What was the issue price?

A) $216.11
B) $962.46
C) $1,006.16
D) $1,058.20
E) $6,117.44

Question 74

Oswald has a five-year compound interest GIC. Its interest rate is 7.2% compounded monthly and its maturity value will be $76,243. How much interest will he have earned over the five-year term?

A) $49,500
B) $53,250
C) $26,743
D) $22,993
E) $19,243

Question 75

The population of Ourtown, Saskatchewan is expected to grow at a rate of 2.5% per year for the next five years. If the current population is 11,763 what is it expected to be in five years?

A) 13,233
B) 12,057
C) 16,555
D) 13,309
E) 10,364

Question 76

Marvin has a five-year GIC which has a maturity value of $88,206.38. The GIC is accumulating at 6.2% compounded semi-annually. What is the principal of the GIC?

A) $30,000
B) $65,000
C) $47,500
D) $48,335
E) $70,000

Question 77

What was the issue price of a 25-year strip bond with a face value of $50,000 and a discount rate of 7% compounded semi-annually?

A) $8,953
B) $9,212
C) $11,318
D) $11,834
E) $11,997

Question 78

Bones McGoo weighs 218 kilograms. His goal is to decrease his weight by 5% each year for 15 years. What will he weigh in 15 years if he achieves his goal?

A) 101 kg.
B) 54.5 kg.
C) 143 kg.
D) 107.4 kg.
E) 126.1 kg.

Question 79

A 25-year, $1,000 strip bond was first issued at 5.5% compounded semi-annually. Five years before maturity it was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.8% compounded semi-annually. What was the selling price at that time?

A) $338
B) $263
C) $762
D) $716
E) $258

Question 80

Seventeen years after it was first issued at 11% compounded semi-annually, a 30-year, $1,000 strip bond was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.4% compounded semi-annually. What was the selling price at that time?

A) $440.89
B) $342.68
C) $248.56
D) $161.96
E) $103.78