Question 1

A $15,000 loan at 5.5% compounded semi-annually is advanced today. Two payments of $4,000 are to be made 1 year and 3 years from now. The balance is to be paid in 5 years. What will the third payment be?

Accepted Answer

The answer of A $15,000 loan at 5.5% compounded semi-annually...

Question 2

On February 1 of 3 successive years, Roger contributed $3,000, $4,000, and $3500, respectively, to his RRSP. The funds in his plan earned 9% compounded monthly for the first year, 8.5% compounded quarterly for the second year, and 7.75% compounded semi-annually for the third year. What was the value of his RRSP 3 years after the first contribution?

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The answer of On February 1 of 3 successive years,...

Question 3

Mustafa can receive a $77.00 discount if he pays his property taxes early. Alternatively, he can pay the full amount of $2,250 when payment is due in 9 months. Which alternative is to his advantage if he can earn 6% compounded monthly on short-term investments? In current dollars, how much is the advantage?

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Question 4

Eric invested $22,000 in a 5-year regular-interest GIC earning 4.5% compounded monthly. What is each monthly interest payment?

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Question 5

An eight year note for $3,800 with interest at 6% compounded semi-annually was sold after three years and three months to yield the buyer 9% compounded quarterly. What price did the buyer pay?

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The answer of An eight year note for $3,800 with...

Question 6

Megan borrowed $1,900 3½ years ago at 7% compounded semi-annually. Two years ago she made a payment of $1,000. What amount is required today to pay off the remaining principal and the accrued interest?

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The answer of Megan borrowed $1,900 3½ years ago at...

Question 7

A four year $8,000 promissory note bearing interest at 6.6% compounded monthly was discounted 21 months after issue to yield 4.8% compounded quarterly. What were the proceeds from the sale of the note?

Accepted Answer

The answer of A four year $8,000 promissory note bearing...

Question 8

Teresa has three financial obligations to the same person: $2,700 due in 1 year, $1,900 due in 1½ years, and $1,100 due in 3 years. She wishes to settle the obligations with a single payment in 2¼ years, when her inheritance will be released from her mother's estate. What amount should the creditor accept if money can earn 6% compounded quarterly?

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Question 9

The process of discounting is the opposite of doing what?

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Question 10

A four-year $7,000 promissory note bearing interest at 10.5% compounded monthly was discounted 18 months after issue to yield 9.5% compounded quarterly. What were the proceeds from the sale of the note?

Accepted Answer

The answer of A four-year $7,000 promissory note bearing interest...

Question 11

Mr. Dickson purchased a 7-year, $30,000 compound-interest GIC with funds in his RRSP. If the interest rate on the GIC is 4.25% compounded semi-annually, what is the GIC's maturity value?

Accepted Answer

The answer of Mr. Dickson purchased a 7-year, $30,000 compound-interest...

Question 12

Why does $100 due one year from now have less economic value than $100 has today? What do you need to know before you can determine the difference between the economic values of the two payments?

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The answer of Why does $100 due one year from...

Question 13

A $6,000 loan at 6% compounded quarterly is to be settled by two payments. The first payment is due after 9 months and the second payment, half the amount of the first payment, is due after 1½ years. Determine the size of each payment.

Accepted Answer

The answer of A $6,000 loan at 6% compounded quarterly...

Question 14

Suppose the future value of $1 after x years is $5. What is the present value of $1, x years before its scheduled payment date? (Assume the same interest rate in both cases.)

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The answer of Suppose the future value of $1 after...

Question 15

Accurate Accounting obtained a private loan of $25,000 for five years. No payments were required, but the loan accrued interest at the rate of 3% compounded monthly for the first 2½ years and then at 8.25% compounded semi-annually for the remainder of the term. What total amount was required to pay off the loan?

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The answer of Accurate Accounting obtained a private loan of...

Question 16

Isaac borrowed $3,000 at 10.5% compounded quarterly 3½ years ago. One year ago he made a payment of $1,200. What amount will extinguish the loan today?

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The answer of Isaac borrowed $3,000 at 10.5% compounded quarterly...

Question 17

Krista invested $18,000 in a 3-year regular-interest GIC earning 4.2% compounded semi-annually. What is the semi-annual interest payment?

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Question 18

Michelle has just received an inheritance from her grandfather's estate. She will be entering college in 3½ years, and wants to immediately purchase three compound-interest investment certificates having the following maturity values and dates: $4,000 at the beginning of her first academic year, $5,000 at the start of her second year, and $6,000 at the beginning of her third year. She can obtain interest rates of 5% compounded semi-annually for any terms between 3 and 5 years, and 5.6% compounded quarterly for terms between 5 and 7 years. What principal amount should she invest in each certificate?

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Question 19

What single payment 1 year from now would be equivalent to $2500 due in 3 months, and another $2,500 due in 2 years? Money is worth 7% compounded quarterly.

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Question 20

What amount three years ago is equivalent to $4,800 on a date 1½ years from now if money earns 8% compounded semi-annually during the intervening time?

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Quiz 8: Compound Interest: Future Value and Present Value