Question 1

Calculate the amount that must be invested at the end of each year at 9% compounded annually in order to accumulate $500,000 after
a) 25 years.
b) 30 years.

Accepted Answer

a) $352,421.75
b) $389,954.60

Question 2

In order to accumulate $500,000 after 25 years, calculate the amounts that must be invested at the end of each year if the invested funds earn:
a. 6% compounded annually.
b. 7% compounded annually.
c. 8% compounded annually.
d. 9% compounded annually.
Also calculate the total earnings in each case. (Note that the total earnings increase proportionately more than the rate of return from one case to the next.)

Accepted Answer

a) $9113.86 & $272,166.00
b) $7905.26 & $302,368.50
c) $6839.39 & $329,015.25
d) $5903.13 & $352,421.75 $289,546.40
$9328.37 & $346,269.60

Question 3

A 20-year annuity is purchased for $400,000. What payment will it deliver at the end of each quarter if the undistributed funds earn:
a. 4% compounded quarterly?
b. 5% compounded quarterly?
c. 6% compounded quarterly?
d. 7% compounded quarterly?
In each case, also calculate the total earnings distributed over the life of the annuity. (Note that the total earnings increase proportionately more than the rate of return from one case to the next.)

Accepted Answer

a) $7287.54 & $183,003.20
b) $7938.61 & $235,088.80
c) $8619.33 & $66,861.80
d) $805.59 & $93,341.60

Question 4

The interest rate on a $100,000 loan is 7.5% compounded monthly. What must be the monthly payment for the loan to be repaid in:
a. 5 years?
b. 10 years?
c. 15 years?
d. 20 years?
Also calculate the total interest paid in each case. (Note that a doubling of the term more than doubles the total interest paid over the life of the loan.)

Accepted Answer

The answer of The interest rate on a $100,000 loan...

Question 5

Assume that the investments within an RRSP will earn 7% compounded annually. What monthly contribution must be made to the RRSP for it to grow to $750,000 in:
a. 15 years?
b. 20 years?
c. 25 years?
d. 30 years?
Also calculate the total earnings within the RRSP in each case. (Note that the total earnings increase proportionately more than the duration of contributions.)

Accepted Answer

The answer of Assume that the investments within an RRSP...

Question 6

Marissa intends to make contributions to a TFSA such that the account will accumulate $150,000 after 20 years. What end-of-quarter contributions must be made if the TFSA earns 6% compounded:
a. annually?
b. semiannually?
c. quarterly?
d. monthly?

Accepted Answer

The answer of Marissa intends to make contributions to a...

Question 7

What monthly payment is required to pay off a $50,000 loan in seven years if the interest rate on the loan is 7.5% compounded:
a. annually?
b. semiannually?
c. quarterly?
d. monthly?

Accepted Answer

The answer of What monthly payment is required to pay...

Question 8

The first of 80 quarterly payments on a $50,000 loan at 6.4% compounded quarterly will be made 30 months after the date the loan was granted. What will be the amount of each payment?

Accepted Answer

The answer of The first of 80 quarterly payments on...

Question 9

Noel has $300,000 with which to purchase an ordinary annuity delivering monthly payments after a 10-year period of deferral. What monthly payment will he receive if the undistributed funds earn 5% compounded semiannually?

Accepted Answer

The answer of Noel has $300,000 with which to purchase...

Question 10

Henry can buy a farm for $700,000 with terms of $100,000 down and the balance payable over 20 years by quarterly payments including interest at 8% compounded annually. What will be the size of the payments? How much interest will Henry pay over the life of the loan?

Accepted Answer

The answer of Henry can buy a farm for $700,000...

Question 11

RBC Royal Bank approved a four-year $20,000 Royal Buy-Back Car Loan to Zaman at 7.5% compounded monthly. The monthly payments are to reduce the balance on the loan to the Royal Bank's guaranteed buy-back value of $7250. Calculate the monthly payment.

Accepted Answer

The answer of RBC Royal Bank approved a four-year $20,000...

Question 12

In order to purchase another truck, Beatty Transport obtained a $50,000 term loan for 5 years at 7.8% compounded semiannually.
a) What are the monthly payments on the loan?
b) What will be the loan's balance at the end of the second year?
c) How much interest will Beatty pay in the first two years?

Accepted Answer

The answer of In order to purchase another truck, Beatty...

Question 13

Mr. Bean wants to borrow $7500 for three years. The interest rate is 9 % compounded monthly.
a) What quarterly payments are required on the loan?
b) What will be the balance owed on the loan at the start of the third year?

Accepted Answer

The answer of Mr. Bean wants to borrow $7500 for...

Question 14

Semiannual payments of $3874.48 are made on a $50,000 loan at 6.5% compounded semiannually. How long will it take to pay off the loan?

Accepted Answer

The answer of Semiannual payments of $3874.48 are made on...

Question 15

The future value of an annuity consisting of end-of-year investments of $1658.87 earning 5.2% compounded annually is $100,000. How many annual investments were made?

Accepted Answer

The answer of The future value of an annuity consisting...

Question 16

For $200,000, Jamal purchased an annuity that delivers end-of-quarter payments of $3341.74. If the undistributed funds earn 4.5% compounded quarterly, what is the term of the annuity?

Accepted Answer

The answer of For $200,000, Jamal purchased an annuity that...

Question 17

If money in a new TFSA earns 8.25% compounded monthly, how long will it take for the plan to reach $30,000 in value based on end-of-month contributions of $209.59?

Accepted Answer

The answer of If money in a new TFSA earns...

Question 18

An endowment fund is set up with a donation of $100,000. If it earns 9% compounded monthly, for how long it will sustain end-of-month withdrawals of $1000? (Include the final smaller withdrawal.)

Accepted Answer

The answer of An endowment fund is set up with...

Question 19

Rounding up the number of contributions to the next integer, how long will it take an RRSP to surpass $100,000 if it takes in end-of-quarter contributions of $3000 and earns 6% compounded quarterly?

Accepted Answer

The answer of Rounding up the number of contributions to...

Question 20

For how long has William been making end-of-quarter contributions of $1200 to his RRSP if the RRSP has earned 8.75% compounded annually and is presently worth $74,385?

Accepted Answer

The answer of For how long has William been making...

Quiz 11: Ordinary Annuities: Periodic Payment, Number of Payments, and Interest Rate

Calculate the amount that must be invested at the end of each year at 9% compounded annually in order to accumulate $500,000 after a) 25 years. b) 30 years.

Marissa intends to make contributions to a TFSA such that the account will accumulate $150,000 after 20 years. What end-of-quarter contributions must be made if the TFSA earns 6% compounded: a. annually? b. semiannually? c. quarterly? d. monthly?

What monthly payment is required to pay off a $50,000 loan in seven years if the interest rate on the loan is 7.5% compounded: a. annually? b. semiannually? c. quarterly? d. monthly?