Question 1

You can purchase a residential building lot for $60,000 cash or for $10,000 down and month-end payments of $1,000 for five years. If money is worth 7.5% compounded monthly, which option should you choose?

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Question 2

What is the maximum price you should pay for a contract guaranteeing month-end payments of $500 for the next 12 years if you require a minimum rate of return of at least 8% compounded monthly for the first five years and at least 9% compounded monthly for the next seven years?

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Question 3

What amount will be required to purchase a 20-year annuity paying $2,500 at the end of each month if the annuity provides a return of 6.75% compounded annually?

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Question 4

Determine the future value (accurate to the cent) of the ordinary general annuity:

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Question 5

You have received two offers on the used car you wish to sell. Mr. Lindberg is offering $9500 cash, and Mrs. Martel's offer is five semi-annual payments of $2,000 including one on the purchase date. Which offer has the greater economic value using a discount rate of 5% compounded semi-annually? What is the economic advantage in current dollars of the preferred alternative?

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The answer of You have received two offers on the...

Question 6

A mortgage broker offers to sell you a loan contract that would provide you with end-of-month payments of $900 for the next $2 \frac{3}{4}$ years. In addition, at the end of the $2 \frac{3}{4}$ year period, you will also receive a lump sum payment of $37,886. What should you pay for the contract, if you require a rate of return of 7.2% compounded monthly?

Accepted Answer

The answer of A mortgage broker offers to sell you...

Question 7

Mr. and Mrs. Krenz are contributing to a Registered Education Savings Plan
(RESP) they have set up for their children. What amount will they have in the RESP after eight years of contributing $500 at the end of every calendar quarter if the plan earns 6% compounded monthly? How much of the total amount is interest?

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Question 8

Calculate the future value of an ordinary annuity consisting of monthly payments of $300 for five years. The rate of interest was 3% compounded monthly for the first two years and will be 4.5% compounded monthly for the last three years.

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Question 9

How much larger will the value of an RRSP be at the end of 25 years if the contributor makes month-end contributions of $300 instead of year-end contributions of $3600? In both cases the RRSP earns 6.5% compounded semi-annually.

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Question 10

A court-ordered award for family support calls for payments of $800 per month for five years, followed by payments of $1,000 per month for 10 more years. If money is worth 6% compounded monthly, what is the economic value of the award one month before the first payment?

Accepted Answer

The answer of A court-ordered award for family support calls...

Question 11

Kent sold his car to Carolynn for $2,000 down and monthly payments of $295.88 for 3½ years, including interest at 7.5% compounded annually. What was the selling price of the car?

Accepted Answer

The answer of Kent sold his car to Carolynn for...

Question 12

Micheline wishes to purchase a 25-year annuity providing payments of $1,000 per month for the first 15 years and $1,500 per month for the remaining 10 years. Sovereign Insurance Co. has quoted her a rate of return of 5% compounded annually for such an annuity. How much will it cost Micheline to purchase the annuity from Sovereign?

Accepted Answer

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Question 13

A loan at 6% compounded semi-annually requires equal monthly payments. What is the value of c? What is the approximate value of the periodic interest rate for one payment interval? Will the correct value be larger or smaller than your estimate? Explain.

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Question 14

An income annuity with quarterly payments earns 6% compounded monthly. What is the value of c? What is the approximate value of the periodic rate of return for one payment interval? Will the correct value be larger or smaller than your estimate? Explain.

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Question 15

A Government of Canada bond will pay $50 at the end of every six months for the next 15 years and an additional $1,000 lump payment at the end of the 15 years. What is the appropriate price to pay if you require a rate of return of 6.5% compounded semi-annually?

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Question 16

Calculate the periodic interest rate that matches the payment interval for each annuity (to the nearest 0.001%):

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Question 17

Gloria has just made her ninth annual $2,000 contribution to her Tax-Free Savings Account (TFSA). She now plans to make semi-annual contributions of $2,000. The first contribution will be made six months from now. How much will she have in her TFSA 15 years from now if the plan has earned and will continue to earn 5% compounded quarterly?

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The answer of Gloria has just made her ninth annual...

Question 18

Determine the present value (accurate to the cent) of the ordinary general annuity:

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The answer of Determine the present value (accurate to the...

Question 19

Annuity G has the same i and PMT as Annuity H. G has twice as many payments as H. Is G's present value (pick one): (i) double, (ii) more than double, or (iii) less than double the amount of H's present value? Give the reason for your choice.

Accepted Answer

The answer of Annuity G has the same i and...

Question 20

LeVero's end-of-month payments of $1167.89 will pay off his mortgage loan in 4 years and 7 months. The interest rate on his mortgage is 6.6% compounded semi-annually. What is the current balance on the loan?

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Quiz 10: Annuities: Future Value and Present Value