Question 1

An investor paid $4217.17 to purchase a $10,000 face value strip bond for her RRSP. At this price the investment will provide a return of 6.47% compounded semiannually. How long (to the nearest day) after the date of purchase will the bond mature? Assume that each half-year is exactly 182 days long.

Accepted Answer

The answer of An investor paid $4217.17 to purchase a...

Question 2

A bank offers a rate of 5.0% compounded semiannually on its four-year GICs. What monthly compounded rate should the bank offer on four-year GIC's to make investors indifferent between the alternatives?

Accepted Answer

The answer of A bank offers a rate of 5.0%...

Question 3

What semiannually compounded rate is equivalent to 4% compounded monthly?

Accepted Answer

The answer of What semiannually compounded rate is equivalent to...

Question 4

To the nearest day, how long will it take a $20,000 investment to grow to $22,000 (including the accrued interest) if it earns 7% compounded quarterly? Assume that a quarter-year has 91 days.

Accepted Answer

The answer of To the nearest day, how long will...

Question 5

What is the significance of two nominal interest rates being equivalent?

Accepted Answer

The answer of What is the significance of two nominal...

Question 6

To the nearest month, how long will it take an investment to double in value if it earns 7.5% compounded semiannually?

Accepted Answer

The answer of To the nearest month, how long will...

Question 7

What monthly compounded rate is equivalent to 6% compounded quarterly?

Accepted Answer

The answer of What monthly compounded rate is equivalent to...

Question 8

Banks usually quote residential mortgage interest rates on the basis of semiannual compounding. An independent mortgage broker is quoting rates with monthly compounding. What rate would the broker have to give to match 6.5% compounded semiannually available from a bank?

Accepted Answer

The answer of Banks usually quote residential mortgage interest rates...

Question 9

A department store chain currently charges 18% compounded monthly on its credit card. To what amount should it set the monthly compounded annual rate if it wants to add 2% to the effective interest rate?

Accepted Answer

The answer of A department store chain currently charges 18%...

Question 10

Terry was supposed to pay $800 to Becky on March 1. At a later date, Terry paid Becky an equivalent payment in the amount of $895.67. If they provided for a time value of money of 8% compounded monthly, when did Terry make the payment?

Accepted Answer

The answer of Terry was supposed to pay $800 to...

Question 11

If the Consumer Price Index rose from 109.6 to 133.8 over an 8½-year period, what was the equivalent compound annual inflation rate during the period?

Accepted Answer

The answer of If the Consumer Price Index rose from...

Question 12

What semiannually compounded rate is equivalent to 8.5% compounded quarterly?

Accepted Answer

The answer of What semiannually compounded rate is equivalent to...

Question 13

Maxine found an old pay statement from nine years ago. Her hourly wage at the time was $13.50 versus her current wage of $20.80 per hour. At what equivalent (compound) annual rate has her wage grown over the period?

Accepted Answer

The answer of Maxine found an old pay statement from...

Question 14

You are offered a loan at a rate of 9% compounded monthly. Below what nominal rate of interest would you choose semiannual compounding instead?

Accepted Answer

The answer of You are offered a loan at a...

Question 15

What quarterly compounded rate is equivalent to 3.5% compounded semiannually?

Accepted Answer

The answer of What quarterly compounded rate is equivalent to...

Question 16

An oil company wants to drop the effective rate of interest on its credit card by 3%. If it currently charges a periodic rate of 1.7% per month, at what amount should it set the periodic rate?

Accepted Answer

The answer of An oil company wants to drop the...

Question 17

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 18

A credit union pays 5.25% compounded annually on five-year compound interest: GICs. It wants to set the rates on its semiannually and monthly compounded GICs of the same maturity so that investors will earn the same total interest. What should be the rates on the GICs with the higher compounding frequencies?

Accepted Answer

The answer of A credit union pays 5.25% compounded annually...

Question 19

If a company's annual sales grew from $165,000 to $485,000 in a period of eight years, what has been the compound annual rate of growth of sales during the period?

Accepted Answer

The answer of If a company's annual sales grew from...

Question 20

A trust company pays 3.5% compounded semiannually on its three-year GICs. For you to prefer an annually compounded GIC of the same maturity, what value must its nominal interest rate exceed?

Accepted Answer

The answer of A trust company pays 3.5% compounded semiannually...

Quiz 9: Compound Interest: Further Topics and Applications