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Mathematics
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Business Mathematics
Quiz 8: Compound Interest: Future Value and Present Value
Path 4
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Question 41
Short Answer
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?
Question 42
Short Answer
How, if at all, will the future value of a 3-year variable-rate GIC differ if it earns 4%, 5%, and 6% in successive years instead of 6%, 5%, and 4% in successive years?
Question 43
Essay
Roger has just invested $60,000 in a five-year Guaranteed Investment Certificate (GIC) earning 3% compounded semi-annually. When the GIC matures, he will reinvest its entire maturity value in a new five-year GIC. What will be the maturity value of the second GIC if it yields: a) The same rate as the current GIC? b) 4% compounded semi-annually? c) 2% compounded semi-annually?
Question 44
Short Answer
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?
Question 45
Essay
The BMO Bank of Montreal advertised rates of 1.8%, 2.25%, 2.6%, 3%, and 3.25% for the five successive years of its five-year compound-interest Rate Optimizer GIC. At the same time, the bank was offering fixed-rate five-year compound-interest GICs yielding 2.75% compounded annually. What total interest would be earned during the five-year term on a $5,000 investment in each type of GIC?
Question 46
Short Answer
Mrs. Sandhu placed $11,500 in a 4-year compound-interest GIC earning 3.75% compounded monthly. What is the GIC's maturity value?
Question 47
Short Answer
On the same date that the CIBC advertised rates of 2%, 2.5%, 3%, 3.25%, and 7% in successive years of its five-year compound-interest Escalating Rate GIC, it offered 2.75% compounded annually on its five-year fixed-rate GIC. How much more will a $10,000 investment be worth at maturity if the Escalating Rate GIC is chosen instead of the fixed-rate GIC?
Question 48
Short Answer
What amount did the owner of a $10,000 face value compound-interest series S120 CSB receive when he redeemed the bond on: a) November 1, 2012? b) May 19, 2013?
Question 49
Essay
For a given term of compound-interest GIC, the nominal interest rate with annual compounding is typically 0.125% higher than the rate with semi-annual compounding and 0.25% higher than the rate with monthly compounding. Suppose that the rates for 5-year GICs are 3.00%, 2.875%, and 2.75% for annual, semi-annual, and monthly compounding, respectively. How much more will an investor earn over 5 years on a $10,000 GIC at the most favourable rate than at the least favourable rate?
Question 50
Short Answer
If an investor has the choice between rates of 5.5% compounded semi-annually and 5.6% compounded annually for a six-year GIC, which rate should be chosen?
Question 51
Essay
On the same date that the Alberta Treasury Branches were advertising rates of 2.25%, 3%, 3.75%, 4.5%, and 6.5% in successive years of their five-year compound-interest Springboard GIC, they offered 3.5% compounded annually on their five-year fixed-rate compound-interest GIC. a) What will be the maturity values of $10,000 invested in each GIC? b) How much interest will each GIC earn in the third year?
Question 52
Short Answer
Stan purchased a $15,000 compound-interest Series S122 Canada Savings Bond on January 1, 2010. The interest rate in the first year was 0.40% and in the second year was 0.65%. What interest did he receive when he redeemed the CSB on November 1, 2012?
Question 53
Short Answer
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?