Question 1

When he died in 1790, Benjamin Franklin left $4,600 to the city of Boston, with the stipulation that the money and its earnings could not be used for 100 years. The bequest grew to $332,000 by 1890. What equivalent compound annual rate of return did the bequest earn during the 100 year period?

Accepted Answer

The answer of When he died in 1790, Benjamin Franklin...

Question 2

An $1,100 investment earning 6.3% compounded annually grew to $4,483.92. What was the term of the investment?

Accepted Answer

The answer of An $1,100 investment earning 6.3% compounded annually...

Question 3

Philippe contributed $4,300 to an RRSP eight years and six months ago. The money was invested in a Canadian Equity mutual fund. The investment is now worth $5537.82. Over the entire period, what monthly compounded nominal rate of return has the investment delivered?

Accepted Answer

The answer of Philippe contributed $4,300 to an RRSP eight...

Question 4

What was the annually compounded nominal rate of growth if the future value of $1,000 after 20 years was $2321.06?

Accepted Answer

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Question 5

No payments were made on a $3,400 loan during its three-year term. What was the annually compounded nominal interest rate on the loan if the amount owed at the end of the term was $4,297.91?

Accepted Answer

The answer of No payments were made on a $3,400...

Question 6

An original loan of $6,500 has accumulated to $10,093.14 based on 9.2% interest compounded annually. The loan is five years old.

Accepted Answer

Using the formula for compound interest, A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($6,500), r is the annual interest rate (9.2% or 0.092), n is the number of times that interest is compounded per year (1, since it's compounded annually), and t is the time the money is invested or borrowed for in years (5). Plugging in the values: A = $6,500(1 + 0.092/1)^(1*5) = $6,500(1.092)^5 ≈ $10,093.14.

Question 7

How long did it take $4,625 earning 4.875% compounded annually to grow to $6768.42?

Accepted Answer

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Question 8

How long before a future payment of $1,000 would a payment of just $100 be an economically equivalent alternative? Round your answer to the nearest month. Assume money can earn 4.8% compounded semiannually.

Accepted Answer

The answer of How long before a future payment of...

Question 9

An effective rate of 11.4% has a nominal rate of 10.84% based on monthly compounding.

Accepted Answer

The effective rate is always greater than or equal to the nominal rate, so the statement is true.

Question 10

An effective rate of 14.9% has a nominal rate of 14.38% based on semi-annual compounding.

Accepted Answer

The effective rate (also known as the effective annual rate or EAR) takes into account the impact of compounding within the year. For semi-annual compounding, the nominal rate is divided into two periods. To find the nominal rate from the effective rate, you would use the formula for converting effective rates to nominal rates given the compounding frequency. The calculation involves finding the nominal rate that, when compounded semi-annually, results in an effective annual rate of 14.9%. The given nominal rate of 14.38% compounded semi-annually would indeed approximate an effective rate of 14.9%, as the compounding effect makes the effective rate higher than the nominal rate.

Question 11

A $1,000 five-year compound-interest GIC matured at $1,234.01. What semiannually compounded rate of interest did it earn?

Accepted Answer

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Question 12

A $45,000 payment on August 11^th was not paid. Instead $46,306.41 was paid earning 8.8% interest compounded quarterly. The payment was made on Dec 20.

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The answer of A $45,000 payment on August 11^th was...

Question 13

$5,000 invested in a GIC earning 3.7% compounded semiannually earned interest of $789.73.What was the term of the GIC?

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The answer of $5,000 invested in a GIC earning 3.7%...

Question 14

Three years ago Mikhail invested $7,000 in a three-year compound interest GIC. He has just received its maturity value of $7,867.34. What was the monthly compounded rate of interest on the GIC?

Accepted Answer

The answer of Three years ago Mikhail invested $7,000 in...

Question 15

The amount owed on a promissory note for $950 after two years and five months is $1082.11. What monthly compounded nominal rate of interest was charged on the debt?

Accepted Answer

The answer of The amount owed on a promissory note...

Question 16

A $9,000 payment on March 1 was not paid. Instead $9,140.65 was paid earning 6.3% interest compounded semi-annually. The payment was made on July 1.

Accepted Answer

The interest calculation for a period less than a year, especially when compounded semi-annually, does not match the scenario described. The interest for a few months would not result in such a precise and relatively high increase from $9,000 to $9,140.65, given the described interest rate and compounding frequency.

Question 17

Mr. and Mrs. Markovich note that the home they purchased 20 years ago for $70,000 is now appraised at $340,000. What was the (equivalent) annual rate of appreciation in the value of their home during the 20-year period?

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The answer of Mr. and Mrs. Markovich note that the...

Question 18

An initial $1,800 investment was worth $2120.31 after two years and nine months.
What quarterly compounded nominal rate of return did the investment earn?

Accepted Answer

The answer of An initial $1,800 investment was worth $2120.31...

Question 19

The maturity value of a $5,000 four-year compound- interest GIC was $5,839.72. What quarterly compounded rate of interest did it earn?

Accepted Answer

The answer of The maturity value of a $5,000 four-year...

Question 20

A strip bond that will mature 7½ years from now at its $13,000 face value can be purchased today for $9,042. What rate of return (compounded semiannually) will this strip bond provide to an investor?

Accepted Answer

The answer of A strip bond that will mature 7½...

Quiz 9: Compound Interest: Further Topics and Applications