Question 1

If the S&P/TSX Composite Index declined from 14,614 to 14,238 over a 50-day period, what were the simple and effective annualized rates of decline in the index during the period?

Accepted Answer

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Question 2

A trust company pays 5.375% compounded annually on its 5-year GICs. What semiannually compounded nominal interest rate would provide the same maturity value?

Accepted Answer

The answer of A trust company pays 5.375% compounded annually...

Question 3

You are offered a loan at a rate of 9% compounded monthly. What would a semiannually compounded nominal rate would a competing bank need to offer in order to provide an equivalent rate?

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

Question 4

If the holding-period return on a money market mutual fund for the most recent seven days is 0.097%, what current (simple) and effective annualized yields will be quoted for the fund in the financial media?

Accepted Answer

The answer of If the holding-period return on a money...

Question 5

Neil's common stock portfolio increased in value over a two-month period from $78,900 to $84,300. What were the simple and effective annualized rates of total return over the period?

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Question 6

Camille can obtain a residential mortgage loan from a bank at 8.75% compounded semiannually or from an independent mortgage broker at 8.6% compounded monthly. Which source should she pick if other terms and conditions of the loan are the same? Present calculations that support your answer.

Accepted Answer

The answer of Camille can obtain a residential mortgage loan...

Question 7

A bank pays a simple interest rate of 2.1% on 30 to 179-day GICs of at least $100,000. What is the effective annualized rate of return:
a) On a 40-day GIC?
b) On a 160-day GIC?

Accepted Answer

The answer of A bank pays a simple interest rate...

Question 8

The terms of payment on an invoice are 3/10, n/90. What are the simple and effective annualized rates of return earned by taking the cash discount on the last day of the discount period instead of paying the full price on the last day of the credit period?

Accepted Answer

The answer of The terms of payment on an invoice...

Question 9

The Consumer Price Index rose from 131.2 to 132.1 during the second quarter of a year. What was the effective annualized rate of inflation during the quarter?

Accepted Answer

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Question 10

The current (simple annualized) yield, based on the holding-period return for the most recent seven days, is reported for a money market mutual fund as 4.54%. What is the fund's corresponding effective (annualized) yield?

Accepted Answer

The answer of The current (simple annualized) yield, based on...

Question 11

If a $15,000 investment grew to $21,805 in 4½ years of quarterly compounding, what effective rate of return was the investment earning?

Accepted Answer

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Question 12

An income tax preparation service discounts income tax refunds at the statutory maximum amount of 15% on the first $300. For example, a taxpayer eligible for a $200 tax refund can sell the refund to the discounter for immediate payment of $170. What is the discounter's effective annualized rate of return if the time taken by Revenue Canada to process the tax return and refund the tax is
a) 25 days? b) 50 days? (Note: With Revenue Canada's EFILE electronic tax return filing system, the turnaround time should be less than three weeks.)

Accepted Answer

The answer of An income tax preparation service discounts income...

Question 13

A T-bill with 125 days remaining to maturity is discounted to yield 4.6% pa simple interest. What is the effective annualized rate of return on the T-bill?

Accepted Answer

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Question 14

If the holding-period return on a money market mutual fund for the most recent seven days is 0.081%, what current (simple) yield and effective annualized yield will be quoted for the fund in the financial media?

Accepted Answer

The answer of If the holding-period return on a money...

Question 15

The current (simple annualized) yield on a money market mutual fund, based on the return for the most recent seven days, is 4.12%. What effective (annualized) yield will be reported for the fund?

Accepted Answer

The answer of The current (simple annualized) yield on a...

Question 16

If the Consumer Price Index rose by 0.5% over a two-month period, what were the simple and effective annualized rates of inflation during the two-month period?

Accepted Answer

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

Question 17

A bank offers a rate of 5.3% compounded semiannually on its four-year GICs. What monthly and annually compounded rates should it quote in order to have the same effective interest rate at all three nominal rates?

Accepted Answer

The answer of A bank offers a rate of 5.3%...

Question 18

What monthly compounded nominal rate would put you in the same financial position as 5.5% compounded semiannually?

Accepted Answer

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Question 19

Danielle's shares in the Industrial Growth Fund (an equity mutual fund) dropped in price from $12.86 to $12.56 over a three-month period. What were the simple and effective annualized rates of return during the period?

Accepted Answer

The answer of Danielle's shares in the Industrial Growth Fund...

Question 20

The Calgary Real Estate Board reports that house prices increased by 5% during the first seven months of the year. If prices continue to rise at the same rate for the subsequent five months, what will be the (compound) increase for the entire year?

Accepted Answer

The answer of The Calgary Real Estate Board reports that...

Quiz 9: Compound Interest: Further Topics and Applications