# Quiz 8: Compound Interest: Future Value and Present Value

Business

Q 1Q 1

A nine-year, $270,000 promissory note bears interest at a rate of 8% compounded annually. What is its maturity value?
A) $$441,889
B) $$539,731
C) $299,057
D) $752,198
E) $135,067

Free

Multiple Choice

B

Q 2Q 2

What is the maturity value of a $3,500 loan for 15 months at 12% compounded quarterly?
A) $3,019.13
B) $5,452.89
C) $4,063.39
D) $4,258.29
E) $4,057.46

Free

Multiple Choice

E

Q 3Q 3

What principal earning 16% compounded quarterly will grow to $8,500 after six years and three months?
A) $448.66
B) $22,659.61
C) $3,188.49
D) $3,361.68
E) $3,147.71

Free

Multiple Choice

C

Q 4Q 4

What amount today is equivalent to $6,800 three years ago, if money earned 12% compounded quarterly over the past three years?
A) $8,872.46
B) $9,553.51
C) $9,695.17
D) $9,729.23
E) $4,769.38

Free

Multiple Choice

Q 5Q 5

Helen's investment of $500 has grown, at a rate of 13% compounded annually, for 45 years. What is the maturity value of her investment?
A) $204,381
B) $129,667
C) $825
D) $82,592
E) $122,321

Free

Multiple Choice

Q 6Q 6

If Smitty is able to earn 11% compounded semi-annually on his $750 investment, how much money will he have in 40 years?
A) $48,751
B) $54,357
C) $73,825
D) $89,324
E) $7,979

Free

Multiple Choice

Q 7Q 7

Calculate the maturity value of $18,559 after 7.5 years at 9% compounded quarterly.
A) $36,179
B) $31,086
C) $32,000
D) $53,776
E) $29,000

Free

Multiple Choice

Q 8Q 8

Everyone thought he was being foolish again when, 65 years ago, great-great-uncle Crazy Louie invested $150 in the common stock of a company that produced a carbonated soft drink in Atlanta Georgia. The value of the stock has grown at an average rate of 15% compounded semi-annually. What's the value of Crazy Louie's foolish investment now?
A) $13,559,733
B) $5,872,556
C) $1,816,317
D) $925,767
E) $146,250

Free

Multiple Choice

Q 9Q 9

If you deposit $2,500 into an investment that grows at 13.2% compounded monthly, what will its value be in 17.5 years?
A) $24,870
B) $57,750
C) $21,890
D) $48,901
E) $16,211

Free

Multiple Choice

Q 10Q 10

Betty borrowed $50 from Chuckie for 2 years at 9% compounded monthly. How much did she owe at the end of the two years?
A) $19.83
B) $59.82
C) $67.88
D) $54.16
E) $63.71

Free

Multiple Choice

Q 11Q 11

Calculate the present value of a payment of $27,500 payable in 10 years if money is worth 9% compounded semi-annually.
A) $29,723.88
B) $11,616.30
C) $11,402.68
D) $9,725.39
E) $8,899.11

Free

Multiple Choice

Q 12Q 12

How much money would have to be invested today, at 9% compounded monthly in order to have $40,000 in seven years?
A) $21,353.81
B) $23,726.43
C) $33,786.03
D) $34,928.08
E) $5,071.92

Free

Multiple Choice

Q 13Q 13

Laurel borrowed some money from Hardy 42 months ago. The loan principal plus interest at 17% compounded annually is to be repaid today. Laurel and Hardy agree that the total amount due is $31,618. How much did Laurel borrow from Hardy 42 months ago?
A) $10,618.49
B) $13,367.12
C) $18,250.88
D) $23,157.32
E) $49,868.89

Free

Multiple Choice

Q 14Q 14

Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investments earn 5% nominal rate, but investment 1 is compounded monthly and investment 2 is compounded semi-annually?
A) Investment 1 is steeper and the graph is growing at a faster rate.
B) Investment 2 is steeper and the graph is growing at a faster rate.
C) Investment 1 is steeper and the graph is growing at a slower rate.
D) Investment 2 is steeper and the graph is growing at a slower rate.
E) The two graphs look the same as they are both compounding interest.

Free

Multiple Choice

Q 15Q 15

Consider a graph of future values of two investments of $1000. How would you expect the graphs of the future values to look if both investment 1 earns 15% compounded annually, and investment 2 earns 10% compounded annually?
A) Investment 1 is steeper and the graph is growing at a faster rate.
B) Investment 2 is steeper and the graph is growing at a faster rate.
C) Investment 1 is steeper and the graph is growing at a slower rate.
D) Investment 2 is steeper and the graph is growing at a slower rate.
E) The two graphs look the same as they are both compounding interest.

Free

Multiple Choice

Q 16Q 16

What amount was invested 35 years ago at 7% compounded semi-annually if the value of the investment has now grown to $1,000,000?
A) $634,757
B) $111,128
C) $103,549
D) $89,986
E) $57,637

Free

Multiple Choice

Q 17Q 17

Murphy's annual income has increased by 10% per year for the last 8 years. If Murphy's annual income is now $72,596, what was it 8 years ago?
A) $14,519
B) $33,867
C) $41,587
D) $51,922
E) $58,077

Free

Multiple Choice

Q 18Q 18

Money is worth 5% compounded semi-annually. What is the value today of a contract that will bring in a payment of $86,500 in nine years?
A) $63,276
B) $38,090
C) $55,461
D) $41,962
E) $55,759

Free

Multiple Choice

Q 19Q 19

Twenty years ago Freddie invested $2,000. For the first 10 years he earned 13% compounded semi-annually. For the next 10 years he earned 8% compounded quarterly. What was the value of the investment now, at the end of the 20 years?
A) $5,927
B) $9,185
C) $17,292
D) $14,732
E) $15,561

Free

Multiple Choice

Q 20Q 20

Boris borrowed $500 five years ago. The interest rate on the loan was 9% compounded monthly for the first 27 months and 6% compounded quarterly for the rest of the time. How much does he owe now?
A) $878.27
B) $720.63
C) $846.92
D) $603.33
E) $751.90

Free

Multiple Choice

Q 21Q 21

Fred borrowed money 18 months ago at 12% compounded semi-annually. He now owes a total of $5,450. How much of this is interest?
A) $874.07
B) $893.71
C) $767.67
D) $3,540.63
E) $1,041.04

Free

Multiple Choice

Q 22Q 22

A $7,000 non-interest-bearing promissory note is discounted at 10% compounded quarterly, two years before maturity. What are the proceeds from the sale of the note?
A) $6,829.27
B) $6,662.70
C) $5,785.12
D) $5,933.33
E) $5,745.23

Free

Multiple Choice

Q 23Q 23

A $10,000 eight-year investment earns interest at 12% compounded semi-annually. If it is sold 30 months before maturity to yield 16% compounded quarterly, what is its selling price?
A) $17,161.71
B) $6,755.64
C) $10,719.15
D) $4,219.55
E) $20,009.91

Free

Multiple Choice

Q 24Q 24

$3,500 borrowed one year ago, is to be settled by payments of $500 today, $1,500 six months from now, and a final payment eighteen months from now. What is the amount of the final payment if the interest rate on the loan is 12% compounded monthly?
A) $3,625.31
B) $1,500.00
C) $7,005.78
D) $1,427.01
E) $2,429.16

Free

Multiple Choice

Q 25Q 25

A company borrowed $50,000 at 12% compounded monthly. It made a payment of $15,000 after two years, and $12,000 after three years. How much is required to pay off the loan one year after the second payment?
A) $17,432.08
B) $42,636.06
C) $29,799.41
D) $48,043.38
E) $80,611.30

Free

Multiple Choice

Q 26Q 26

If Murphy puts $45,000 into an investment that earns 12% compounded monthly, and after three years he withdraws $30,000, how much money will the investment be worth seven years after the withdrawal?
A) $79,316
B) $49,506
C) $92,142
D) $69,202
E) $118,517

Free

Multiple Choice

Q 27Q 27

Jack invested $10,000 at 10% compounded annually for 35 years. Jill also invested $10,000 for 35 years but her interest rate was 11% compounded annually. How much MORE interest did Jill earn as compared to Jack?
A) $14,166
B) $55,632
C) $92,418
D) $104,724
E) $189,627

Free

Multiple Choice

Q 28Q 28

Twenty-five years ago Sandy invested $3,000. Fifteen years ago she put another $2,000 into the investment. Over the 25 years, interest has accumulated at a rate of 6% compounded monthly. How much interest has she earned over the 25 years?
A) $18,303
B) $6,567
C) $5,134
D) $11,567
E) $13,303

Free

Multiple Choice

Q 29Q 29

Eighteen years from now I will need to have $120,000 to pay for my child's post-secondary education. I anticipate being able to earn 14% compounded annually for the first 10 years and 11% compounded annually for years #11 through #20. What amount of money should I invest today in order to meet my goal?
A) $14,046
B) $16,380
C) $21,750
D) $29,600
E) $30.790

Free

Multiple Choice

Q 30Q 30

Doris is retiring today and she plans to buy a new car for $25,000 seven years from now and a second new car for $40,000 seventeen years from now. How much "new car money" should she set aside now if she can expect to earn 8½% compounded annually on her savings?
A) $42,515
B) $31,879
C) $24,421
D) $24,118
E) $16,590

Free

Multiple Choice

Q 31Q 31

Today is Almo's 20

^{th}birthday and he has just received a large amount of money to sign a contract with a professional hockey team. He wants to put away enough money to make sure that on his 50^{th}birthday he will have $2,500,000. For the next ten years he is confident that his investments will earn 15% compounded annually and after that, 10% compounded annually. How much must he invest today? A) $761,545 B) $299,419 C) $117,674 D) $99,278 E) $91,856Free

Multiple Choice

Q 32Q 32

Andy borrowed money four years ago at 13.2 % compounded monthly. He now owes a total of $13,743. How much of this is interest?
A) $8,129
B) $7,114
C) $5,614
D) $9,492
E) $11,611

Free

Multiple Choice

Q 33Q 33

Two payments of $7,500 each must be made three years and six years from now. If money can earn 8.4% compounded monthly, what single payment, four years from now, would be equivalent to the two scheduled payments?
A) $13,218
B) $18,638
C) $15,501
D) $14,499
E) $22,034

Free

Multiple Choice

Q 34Q 34

Two payments of $850 and $600 must be made two years and five years from now respectively. If money can earn 4% compounded semi-annually, what single payment, three years from now, would be equivalent to the two scheduled payments?
A) $1,477.16
B) $1,609.22
C) $15,783.88
D) $1,404.19
E) $1,438.65

Free

Multiple Choice

Q 35Q 35

Amanda borrowed $1,500, $3,500 and $5,000 at the beginning of each year. The rate of interest was at 4.8% compounded monthly. Using the financial functions on the calculator, determine the value that must be repaid at the end of year 3.
A) $10,829.10.
B) $11,034.67
C) $11,464.22
D) $11,829.67
E) $12,318.54

Free

Multiple Choice

Q 36Q 36

Adel borrowed $6,500, 2 ½ years ago. She made a $800 payment 18 months ago. Using the financial functions on the calculator, determine how much she has to pay now if interest is 6.2% compounded monthly?
A) $6,128.21
B) $6,235.48
C) $6,708.99
D) $6,489.55
E) $6,656.47

Free

Multiple Choice

Q 37Q 37

Albert purchased Bonzo's car for $500 cash and a non-interest bearing promissory note for $2,000 payable in two years. How much money can Bonzo expect to receive for the note if he immediately sells it to Corleone Finance Company at a discount rate of 30% compounded monthly?
A) $383
B) $2,616
C) $1,617
D) $1,400
E) $1,106

Free

Multiple Choice

Q 38Q 38

Nancy deposits $22,000 in an investment account earning 4.2% interest annually. In addition, she plans on withdrawing $4,000, $6,000 and $8,000 over a three-year period. Using the financial functions on the calculator, determine how much Nancy will have remaining at the end of year 3.
A) $6,404
B) $6,378
C) $6,295
D) $6,267
E) $6,006

Free

Multiple Choice

Q 39Q 39

Debbie has two promissory notes payable to her. The first one will mature in five years at $42,371 and the second one will mature in eight years at $78,529. What amount can she expect to receive from the Lansky Finance Company if, one year from now, she sells both of the notes to them at a discount rate of 19% compounded annually?
A) $37,283
B) $44,367
C) $78,154
D) $39,028
E) $57,413

Free

Multiple Choice

Q 40Q 40

Assume money can earn 15% compounded semi-annually. Rank the following payments in order of the payee's first choice, second choice, and third choice, respectively: 10,000 paid today, $20,000 to be paid five years from today, or $13,500,000 to be paid fifty years from today.
A) $10,000; $20,000; $13,500,000
B) $10,000; $13,500,000; $20,000
C) $13,500,000; $10,000; $20,000
D) $13,500,000; $20,000; $10,000
E) $20,000; $13,500,000; $10,000

Free

Multiple Choice

Q 41Q 41

A payment of $8,000 is due on May 15, 2023. What was the value of this obligation on May 15, 2008 if money can earn 12% compounded quarterly between the two dates?
A) $26,096.30
B) $5,952.75
C) $1,666.31
D) $2,452.45
E) $1,357.865

Free

Multiple Choice

Q 42Q 42

A $25,000 loan at 9% compounded monthly is to be repaid by two equal payments due 1.5 years and 2.5 years after the date of the loan. What is the size of each payment?
A) $11,939.97
B) $14,940.15
C) $15,015.33
D) $18,266.18
E) $22,855.95

Free

Multiple Choice

Q 43Q 43

Payments of $2,000 due six months ago and $5,000 due three years from now, are to be replaced by two equal payments due now and one year from today. What is the amount of each payment if money is worth 12% compounded monthly? Use a focal date of today.
A) $3,118.98
B) $2,641.34
C) $2,976.33
D) $4,915.04
E) $3,211.14

Free

Multiple Choice

Q 44Q 44

Five years ago Sylvio borrowed $12,000 from Warren at 11% compounded annually. Two years ago he made a payment of $7,000 to reduce his debt. Now how much, including interest, does Sylvio owe to Warren?
A) $14,339
B) $11,596
C) $9,217
D) $7,675
E) $5,972

Free

Multiple Choice

Q 45Q 45

Leo's Furniture is offering a "houseful of furniture" for $7,777. Furthermore, if you make a down payment of $777 you can wait for 2½ years to pay the $7,000 balance. If Leo's Furniture immediately sells the $7,000 receivable contract to the Corleone Finance Group at a discount rate of 24% compounded monthly, how much money will Leo's actually receive for the "houseful of furniture"?
A) $3,864.50
B) $4,255.53
C) $4,641.50
D) $5,679.53
E) $6,897.50

Free

Multiple Choice

Q 46Q 46

In order to pay off a debt that he took out today, Roger will have to make a payment of $3,500 in 15 months and $5,500 in 36 months. The interest rate is 8% compounded quarterly. What is the total amount of interest that is included in these payments?
A) $1,016.39
B) $1,493.23
C) $2,287.88
D) $7,506.77
E) $1,839.61

Free

Multiple Choice

Q 47Q 47

Kramer borrowed $6,000 from George at an interest rate of 6% compounded quarterly. The loan is to be repaid by three payments. A payment of $2,000 is due two years after the date of the loan. The second and third payments are to be of equal amounts and are to be paid three and five years after the date of the original loan. Calculate the size of the last two payments.
A) $2,481.63
B) $2.406.52
C) $2,675.71
D) $2,277.43
E) $2,197.91

Free

Multiple Choice

Q 48Q 48

A loan of $10,000 is being taken out today. The interest rate is 9% compounded monthly. Equal payments are to be made two and five years from now. After the second payment is made in five years there will be a balance of $3,000 still owing on the loan. Calculate the size of the two equal payments.
A) $4,790.21
B) $5,482.35
C) $5,692.38
D) $6,014.19
E) $4,747.27

Free

Multiple Choice

Q 49Q 49

A $25,000 obligation is to be repaid by two payments. The first payment is one year from now, while the second is 2 years from now. In addition, the second payment will be twice the amount of the first. Interest is 6.65% compounded annually. Using the financial functions on the calculator, determine the size of each payment.
A) Payment #1 = $8,887.50; Payment #2 = $17,775
B) Payment #1 = $5,550.50; Payment #2 = $11,101
C) Payment #1 = $8,500; Payment #2 = $17,000
D) Payment #1 = $10,000.50; Payment #2 = $20,001
E) Payment #1 = $17,775; Payment #2 = $8,887.50

Free

Multiple Choice

Q 50Q 50

Tyrone wishes to save $35,000 in 5 years' time. In the last 2 years, he will contribute $125 per quarter in an account earning 3.6% compounded monthly. In the middle 2 years, he will contribute $75 per month with the same monthly contributions. He plans to contribute $1,000 semi-annually during the first year, in the same account. Using the financial functions on the calculator, determine the initial deposit to be made by Tyrone if he wishes to have $35,000 in his account in 5 years.
A) $24,918.90
B) $24,990.11
C) $25,105.13
D) $25,427.15
E) $25,681.18

Free

Multiple Choice

Q 51Q 51

Manuel deposits $35,000 into an investment account earning 3.9% interest compounded annually. The purpose of this deposit is for Manuel to withdraw $700 per month as an allowance during his 4 years of university. In addition, he wishes to have some money left in the account after the 4-year time period. Using the financial functions on the calculator, determine the amount of remaining after his education is completed.
A) $8,285.45
B) $7,890.56
C) $6,244.12
D) $5,125.84
E) $4,538.38

Free

Multiple Choice

Q 52Q 52

What periodic payment will an investor receive from a six-year, $90,000 monthly payment GIC earning a nominal rate of 4.2% compounded monthly?
A) $378
B) $315
C) $292
D) $266
E) $188

Free

Multiple Choice

Q 53Q 53

Judy invested $8,500 in a three-year compound-interest GIC earning 6% compounded monthly. What is the GIC's maturity value?
A) $7,102.98
B) $10,102.98
C) $10,123.64
D) $9,897.02
E) $10,171.78

Free

Multiple Choice

Q 54Q 54

What periodic payment will an investor receive from a 10-year, $250,000 annual payment GIC earning a nominal rate of 5.88% compounded annually?
A) $7,600
B) $5,698
C) $19,267
D) $12,250
E) $14,700

Free

Multiple Choice

Q 55Q 55

What regular interest payment will Grandmamma receive from a seven-year, $1,750,000 monthly payment GIC earning a nominal rate of 5.4% compounded monthly?
A) $30,378
B) $21,767
C) $9,544
D) $7,875
E) $6,450

Free

Multiple Choice

Q 56Q 56

Calculate the maturity value of a five-year, $400,000 Guaranteed Investment Certificate at accumulating at 6% compounded quarterly.
A) $538,742
B) $696,988
C) $880,000
D) $903,443
E) $994,001

Free

Multiple Choice

Q 57Q 57

Calculate the maturity value of a two-year, $20,000 Guaranteed Investment Certificate accumulating at 5% compounded semi-annually.
A) $18,119
B) $20,000
C) $22,076
D) $23,612
E) $24,310

Free

Multiple Choice

Q 58Q 58

A bank offers a four-year "Escalating Rate GIC" on which the interest rate for year one is 3% compounded annually, 4% compounded annually for year two, 5% compounded annually for the third year and 6% compounded annually for the fourth year. Determine the maturity value of a $100,000 four-year "Escalating Rate GIC".
A) $116,794
B) $117,251
C) $118,704
D) $118,933
E) $119,225

Free

Multiple Choice

Q 59Q 59

How much interest would be earned on a 10-year $117,000 Guaranteed Investment Certificate that grows at 9% compounded monthly?
A) $126,360
B) $159,982
C) $169,809
D) $276,981
E) $286,808

Free

Multiple Choice

Q 60Q 60

First Dominion Bank offers a two-year "Rising Rate" GIC. For the first year the interest rate is 4.5% compounded semi-annually and for the second year the rate is 5.5% compounded semi-annually. What will be the maturity value of a $50,000 two-year "Rising Rate" GIC?
A) $51,770
B) $52,500
C) $55,000
D) $55,190
E) $57,765

Free

Multiple Choice

Q 61Q 61

Scotia Bank offers a 4-year rate raiser RRSP. The annual compound rates are 2.5%, 3.2%, 3.8% and 4.2%. Determine the average annual rate of interest earned during the four year period.
A) 3.423%
B) 4.323%
C) 5.156%
D) 6.571%
E) 7.676%

Free

Multiple Choice

Q 62Q 62

A financial institution is offering a 3-year rate optimizer GIC with annual rates of 4.6%, 5.2% and 5.8%. If $10,000 was invested in the GIC, then determine the total interest earned at the end of the 3 year period.
A) $1,506.25
B) $1,642.15
C) $1,855.68
D) $2,106.24
E) $2,480.68

Free

Multiple Choice

Q 63Q 63

Marvin has a five-year GIC which has a maturity value of $88,206.38. The GIC is accumulating at 6.2% compounded semi-annually. What is the principal of the GIC?
A) $30,000
B) $65,000
C) $47,500
D) $48,335
E) $70,000

Free

Multiple Choice

Q 64Q 64

Oswald has a five-year compound interest GIC. Its interest rate is 7.2% compounded monthly and its maturity value will be $76,243. How much interest will he have earned over the five-year term?
A) $49,500
B) $53,250
C) $26,743
D) $22,993
E) $19,243

Free

Multiple Choice

Q 65Q 65

A $1,000 face value compound-interest series S114 Canada Savings Bond was redeemed on March 8, 2013. What amount did the bond's owner receive? (Obtain the issue date and the interest rates paid on the bond from Table 8.2)
A) $1,567.23
B) $1,037.62
C) $1,073.26
D) $1, 053.89

Free

Multiple Choice

Q 66Q 66

A 25-year, $10,000 strip bond was issued at a market rate of 9.4% compounded semi-annually. What was the issue price?
A) $216.11
B) $962.46
C) $1,006.16
D) $1,058.20
E) $6,117.44

Free

Multiple Choice

Q 67Q 67

A 25-year, $10,000 strip bond was first issued at 6% compounded semi-annually. Nine years before maturity it was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.8% compounded semi-annually. What was the selling price at that time?
A) $3,430
B) $3,883
C) $5,478
D) $5,874
E) $6,246

Free

Multiple Choice

Q 68Q 68

A 25-year, $1,000 strip bond was first issued at 5.5% compounded semi-annually. Five years before maturity it was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.8% compounded semi-annually. What was the selling price at that time?
A) $338
B) $263
C) $762
D) $716
E) $258

Free

Multiple Choice

Q 69Q 69

A 30-year, $1,000 strip bond was issued by Sun Oil Company at a yield rate of 8.8% compounded semi-annually. How much money did Sun Oil borrow by issuing this bond?
A) $17.50
B) $75.50
C) $755.00
D) $1,000.00
E) $1,750.55

Free

Multiple Choice

Q 70Q 70

If a 30-year, $10,000 strip bond is issued at a yield rate of 5.75% compounded semi-annually, what is its issue price?
A) $349
B) $978
C) $993
D) $1,869
E) $1,826

Free

Multiple Choice

Q 71Q 71

What was the issue price of a 25-year strip bond with a face value of $50,000 and a discount rate of 7% compounded semi-annually?
A) $8,953
B) $9,212
C) $11,318
D) $11,834
E) $11,997

Free

Multiple Choice

Q 72Q 72

On the day it was issued, Aaron bought a 30-year, $1,000 strip bond at a market rate of 6% compounded semi-annually. Four years later he sold it to Zevon at the market rate of 7% compounded semi-annually. What was Aaron's profit or loss?
A) ($6.91) Loss
B) ($2.58) Loss
C) $0.00
D) $2.58 Profit
E) $6.91 Profit

Free

Multiple Choice

Q 73Q 73

Four years after it was first issued at 6% compounded semi-annually, a 25-year, $10,000 strip bond was sold on the bond market at a price that would provide the purchaser with a yield rate of 4.8% compounded semi-annually. What was the selling price at that time?
A) $2,281
B) $2,667
C) $2,890
D) $3,693
E) $3,736

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Multiple Choice

Q 74Q 74

Seventeen years after it was first issued at 11% compounded semi-annually, a 30-year, $1,000 strip bond was sold on the bond market at a price that would provide the purchaser with a yield rate of 6.4% compounded semi-annually. What was the selling price at that time?
A) $440.89
B) $342.68
C) $248.56
D) $161.96
E) $103.78

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Multiple Choice

Q 75Q 75

A 30-year, $10,000 strip bond was originally issued at 5% compounded semi-annually. Ten years later the original purchaser sold the bond at the prevailing market rate at that time which was 7% compounded semi-annually. How much profit did the original purchaser earn over the 10 years?
A) $(1,198) Loss
B) $253 Profit
C) $806 Profit
D) $1,451 Profit
E) $2,000 Profit

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Multiple Choice

Q 76Q 76

If the inflation rate for the next 20 years is 4% per year, what hourly rate of pay in 20 years will be equivalent to $10 per hour today?
A) $226.00
B) $14.56
C) $19.19
D) $21.91
E) $22.60

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Multiple Choice

Q 77Q 77

The population of Ourtown, Saskatchewan is expected to grow at a rate of 2.5% per year for the next five years. If the current population is 11,763 what is it expected to be in five years?
A) 13,233
B) 12,057
C) 16,555
D) 13,309
E) 10,364

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Multiple Choice

Q 78Q 78

Bones McGoo weighs 218 kilograms. His goal is to decrease his weight by 5% each year for 15 years. What will he weigh in 15 years if he achieves his goal?
A) 101 kg.
B) 54.5 kg.
C) 143 kg.
D) 107.4 kg.
E) 126.1 kg.

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Multiple Choice

Q 79Q 79

The number of people working in service industries in British Columbia has been growing at a rate of 4% per year for eight years. Today there are 1.86 million service workers in B.C. How many were there five years ago?
A) 1.09 million
B) 2.26 million
C) 1.49 million
D) 1.53 million

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Multiple Choice

Q 80Q 80

Today, in Brazil, there are 462,966 people in prison. The prison population there has been decreasing at a rate of 1.9% per year for the last 10 years. How many prisoners were there in Brazil 10 years ago?
A) 375,002
B) 560,866
C) 607,562
D) 558,844
E) 383,537

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Multiple Choice

Q 81Q 81

It is estimated that the whale population in the North Atlantic will continue to decrease by 1.5% per year. At that rate what percentage of the current whale population will be lost over the next 20 years?
A) 23.1%
B) 43.6%
C) 26.1%
D) 28.9%
E) 30.0%

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Multiple Choice

Q 82Q 82

The quality control director at Ace Industries has determined that, currently far too many of the Aces they produce are defective. His target is to reduce the defective rate by 5% of the previous month's rate for each of the next six months. If he is successful what proportion of the current rate of defective Aces will he have eliminated?
A) 26.5%
B) 30.0%
C) 34.0%
D) 48.6%
E) 16.5%

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Multiple Choice

Q 83Q 83

Orlando must be able to take $5,000 from his savings in four years and again in seven years. His savings will earn 7.2% compounded monthly. How much must be in the account now in order to meet his needs?
A) $6,738
B) $6,050
C) $6,777
D) $7,255
E) $7,451

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Multiple Choice

Q 84Q 84

Pablo plans to pay off debt with payments of $1,600 one year from now, $1,800 in 18 months and $2,000 in 30 months. If interest is 8% compounded quarterly, determine the payment that will settle the obligations.
A) $1,717.20
B) $2,717.20
C) $3,717.20
D) $4,717.20
E) $5,717.20

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Multiple Choice

Q 85Q 85

Lori-Anne invests $2,500 over a two-and-a-half-year period at 5% compounded quarterly. Thereafter, the interest rate changes to 6% compounded monthly. Determine the value of the investment two years after the interest rate change.
A) $7,190.63
B) $6,190.63
C) $5,190.63
D) $4,190.63
E) $3,190.63

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Multiple Choice

Q 86Q 86

Mateo deposits $5,000 at the end of years 2, 4 and 6. If interest is 8.2% compounded annually, determine the value at the end of year 6.
A) $18,706.59
B) $19,706.59
C) $20,706.59
D) $21,706.59
E) $22,706.59

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Multiple Choice

Q 87Q 87

Taylor deposits $3,500 at the end of year 1, $4,000 at the end of year 3 and $2,500 at the end of year 5. If interest is 6.2% compounded monthly, determine the value at the end of year 7.
A) $11,504.67
B) $11,909.03
C) $12,504.67
D) $13024.06
E) $13,504.67

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Multiple Choice

Q 88Q 88

Payments of $4,000 and $3,500 were originally scheduled to be paid two years and 4 years from today. They are to be replaced by a $5,000 payment 3 years from today and anther payment in 6 years. Determine the value of the final payment if interest is 4% compounded quarterly.
A) $2,752.46
B) $2,846.18
C) $2,917.67
D) $3,182.07
E) $3,478.22

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Multiple Choice

Q 89Q 89

Scheduled payments of $8,000 and $9,000 are due 2 years and 3 years from today. The payments have been replaced by a $5,000 in four years and another payment one year from now. Determine the value of the final payment if interest is 3.85% compounded monthly.
A) $11,352.15
B) $11,408.68
C) $11,576.93
D) $11,762.43
E) $11,981.07

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Multiple Choice

Q 90Q 90

Sharon has received an offer to purchase her bakery. The first offer is for $60,000 now along with two payments of $25,000 at the end of each year for two years. The second offer is for $30,000 now, no payment in year 1 and $45,000 in years 2 and three. If interest is calculated at 4.2% compounded monthly, determine whether the first offer is the better alternative, and by how much.
A) Option 1 by $2,500.66
B) Option 1 by $4,099.21
C) Option 2 by $4,099.21
D) Option 2 by $2,500.66
E) Option 2 by $750.25

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Multiple Choice

Q 91Q 91

Gilbert has received two offers for his business. The first offer is for $200,000 now and $40,000 payments per year over the course of 5 years. The second offer is for $200,000 now and $50,000 payments per year for four years. If interest is 4.8% compounded quarterly, determine whether the first or second offer should be accepted, and by how much.
A) Second offer by $6,790
B) Second offer by $5,995
C) Second offer by $4,042
D) First offer by $4,042
E) First offer by $5,995

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Multiple Choice

Q 92Q 92

Superlotto offers a choice of $1,000 per week for 25 years or a lump sum payment of $720,000 now. If interest is 5.2% compounded quarterly, determine which option should be chosen, and the economic difference between the two alternatives.
A) Weekly option - benefit of $9,516
B) Weekly option - benefit of $54,481
C) Lump sum option - benefit of $154,481
D) Lump sum option - benefit of $54,481
E) Lump sum option - benefit of $4,481

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Multiple Choice

Q 93Q 93

LottoNow offers a choice of $500 per week for 10 years or a lump sum payment of $220,000 now. If interest is 4.6% compounded semi-annually, determine which option should be chosen, and the economic difference between the two alternatives.
A) Lump sum - benefit of $11,184
B) Lump sum - benefit of $5,434
C) Lump sum - benefit of $1,434
D) Weekly payments - $1,434
E) Weekly payments - $5,434

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Multiple Choice

Q 94Q 94

Michelle is reorganizing scheduled debt of $1,000 today and $2,000 due one year from now. It is to be settled by a payment of $1,500 three months from now and a final payment 18 months from now. If interest is 10% compounded quarterly, determine the size of the final payment.
A) $563.83
B) $1,063.83
C) $1,563.83
D) $2,563.83
E) $3,563.83

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Multiple Choice

Q 95Q 95

A $2,000 payment due 2 years ago and another $4,000 payment 18 months from now are to be replaced by a lump sum payment in 3 years. Using the financial functions on the calculator, determine the value of this payment if interest is at 2.4% compounded quarterly.
A) $6,000.34
B) $6,100.34
C) $6,200.34
D) $6,300.34
E) $6,400.34

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Multiple Choice

Q 96Q 96

A $4,000 payment has to be made 3 years from now and another $6,000 payment 5 years from now. Using the financial functions on the calculator, determine what lump sum payment 40 months from now will be equivalent to these two payments if interest is 5.2% compounded quarterly.
A) $11,654.38
B) $11,253.35
C) $9,574.45
D) $9,224.69
E) $8,62.74

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Multiple Choice

Q 97Q 97

Sam has a financial obligation that requires him to pay $1,700 in one year; $1,300 in 2 ½ years and a final payment of $2,000 in 3 years. If Sam wishes to pay off all his obligations in 18 months, given an interest rate of 6.7% compounded quarterly. Using the financial functions on the calculator, determine the lump sum payment needed to fulfill his obligations in 18 months.
A) $4,784.14
B) $4,884.26
C) $4,916.54
D) $5,219.23
E) $5,424.86

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Multiple Choice

Q 98Q 98

An $18,000 obligation is to be repaid by two payments. The first payment is six months from now, while the second is 18 months from now. In addition, the second payment will be half the amount of the first. Interest is 5.15% compounded semi-annually. Using the financial functions on the calculator, determine the size of each payment.
A) Payment #1 = $12,516; Payment #2 = $6,258
B) Payment #1 = $10,440; Payment #2 = $5,220
C) Payment #1 = $11,000; Payment #2 = $5,500
D) Payment #1 = $12,000; Payment #2 = $6,000
E) Payment #1 = $6,000; Payment #2 = $18,000

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Multiple Choice

Q 99Q 99

A $4,000 obligation is to be repaid by three payments. The first payment is now, the second is 18 months from now, and the final payment is in 24 months. In addition, the second payment will be half the amount of the first, while the third payment will be twice as much as the first. Interest is 4.8% compounded quarterly. Using the financial functions on the calculator, determine the size of each payment.
A) Payment #1 = $1218.24; Payment #2 = $609.12; Payment #3 = $2436.48
B) Payment #1 = $500; Payment #2 = $250; Payment #3 = $1,000
C) Payment #1 = $2520.50; Payment #2 = $1,260.25; Payment #3 = $5,041
D) Payment #1 = $3,300.75; Payment #2 = $1,650.38; Payment #3 = $6,601.50
E) Payment #1 = $875.50; Payment #2 = $437.75; Payment #3 = $1,751

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Multiple Choice

Q 100Q 100

Maria has just received an inheritance of $89,218 and she is going to invest the money today at 10.5% compounded monthly. This money must provide her with $75,000 in eight years and $100,000 in twelve years. If the $89,218 isn't enough, she will add to the investment now from her other savings. If the $89,218 is more than enough she will spend the extra money. Which of the following statements is true?
A) She must add $11,674 to the $89,218.
B) She must add $85,782 to the $89,218.
C) She has exactly the right amount of money now.
D) She can spend $137,812 of the $89,218.
E) She can spend $28,200 of the $89,218.

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Multiple Choice

Q 101Q 101

Six-year-old Jerry's grandmother is going to invest $18,000 now to pay for the first two years of Jerry's college education. She plans to provide him with two equal payments. The first will be in 11 years and the second will be in 12 years. If the investment earns 9% compounded semi-annually what will be the size of the two payments?
A) $13,765.75
B) $15,749.62
C) $18,499.77
D) $22,259.16
E) $24,745.53

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Multiple Choice

Q 102Q 102

What total interest will be earned by $5,000 invested at 5.4% compounded monthly for 3½ years?

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Essay

Q 103Q 103

By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer.
a) 12.0% compounded monthly.
b) 12.1% compounded quarterly.
c) 12.2% compounded semi-annually.
d) 12.3% compounded annually.

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Short Answer

Q 104Q 104

By calculating the maturity value of $100 invested for 1 year at each rate, determine which rate of return an investor would prefer.
a) 8.0% compounded monthly.
b) 8.1% compounded quarterly.
c) 8.2% compounded semi-annually.
d) 8.3% compounded annually.

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Short Answer

Q 105Q 105

What is the maturity value of a $12,000 loan for 18 months at 5.2% compounded quarterly? How much interest is charged on the loan?

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Essay

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Short Answer

Q 109Q 109

You owe $6,000 payable three years from now. What alternative amount should your creditor be willing to accept today if she can earn 2.1% compounded monthly on a low-risk investment?

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Short Answer

Q 110Q 110

Why is $100 received today worth more than $100 received at a future date? Is inflation the fundamental reason?

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Essay

Q 111Q 111

What amount 15 months ago is equivalent to $2,600, 1½ years from now? Assume money can earn 5.4% compounded monthly.

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Short Answer

Q 112Q 112

A $1,000 investment is made today. Calculate its maturity values for the six combinations of terms and annually compounded interest rates in the following table.

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Essay

Q 113Q 113

If your client's objective is to have $10,000 in four years, how much should he invest today in a product earning 5.5% compounded annually? (Taken from CIFP course materials)

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Short Answer

Q 114Q 114

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Short Answer

Q 115Q 115

A $2,300 payment due 1½ years ago has not been paid. If money earns 6.25% compounded semi-annually, what amount in two years from now would be the economic equivalent to the missed payment during the intervening time?

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Short Answer

Q 116Q 116

Faisal borrowed $3,000, $3,500, and $4,000 from his father on January 1 of 3 successive years at college. Faisal and his father agreed that interest would accumulate on each amount at the rate of 5% compounded semi-annually. Faisal is to start repaying the loan on the January 1 following graduation. What consolidated amount will he owe at that time?

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Short Answer

Q 117Q 117

Interest rates were at historical highs in the early 1980s. In August of 1981, you could earn 17.5% compounded annually on a five-year term deposit with a Canadian bank. Since then, the interest rate offered on five-year term deposits dropped to a low of 1.1% compounded annually in June of 2013. On a $10,000 deposit for a term of five years, how much more would you have earned at the historical high interest rate than at the more recent low rate?

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Short Answer

Q 118Q 118

Jacques has just been notified that the combined principal and interest on an amount he borrowed 19 months ago at 8.4% compounded monthly is now $2,297.78. How much of this amount is principal and how much is interest?

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Essay

Q 119Q 119

Noori borrowed $5,000 for 4.5 years. For the first 2.5 years, the interest rate on the loan was 8.4% compounded monthly. Then the rate became 5.5% compounded semi-annually. What total amount was required to pay off the loan if no payments were made before the expiry of the 4.5-year term?

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Short Answer

Q 120Q 120

An investment of $2,500 earned interest at 4.5% compounded quarterly for 1½ years, and then 4.0% compounded monthly for two years. How much interest did the investment earn in the 3½ years?

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Short Answer

Q 121Q 121

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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Essay

Q 123Q 123

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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Q 124Q 124

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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Q 125Q 125

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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Short Answer

Q 126Q 126

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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Short Answer

Q 127Q 127

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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Short Answer

Q 128Q 128

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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Essay

Q 129Q 129

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?

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Short Answer

Q 130Q 130

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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Q 131Q 131

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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Q 132Q 132

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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Essay

Q 133Q 133

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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Short Answer

Q 134Q 134

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?

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Short Answer

Q 135Q 135

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.

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Essay

Q 136Q 136

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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Q 137Q 137

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?

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Q 138Q 138

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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Q 139Q 139

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?

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Q 140Q 140

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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Q 141Q 141

Mrs. Sandhu placed $11,500 in a 4-year compound-interest GIC earning 3.75% compounded monthly. What is the GIC's maturity value?

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Q 142Q 142

A trust company offers 3-year compound-interest GICs earning 4.8% compounded monthly or 4.9% compounded semi-annually. Which rate should an investor choose?

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Q 143Q 143

If an investor has the choice between rates of 5.4% compounded quarterly and 5.5% compounded annually for a six-year GIC, which rate should be chosen?

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Q 144Q 144

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?

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Q 145Q 145

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?

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Q 146Q 146

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?

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Q 147Q 147

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?

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Q 148Q 148

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?

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Q 149Q 149

What was the redemption value of a $300 face value compound-interest series S108 CSB on March 8, 2013?

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Q 150Q 150

A $1,000 face value compound-interest series S114 Canada Savings Bond was redeemed on March 14, 2013. What amount did the bond's owner receive? (Obtain the issue date and the interest rates paid on the bond from Table 8.2)

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Q 151Q 151

What price should be paid for a $5,000 face value strip bond with 19.5 years remaining to maturity if it is to yield the buyer 4.1% compounded semi-annually?

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Q 152Q 152

Mrs. Janzen wishes to purchase 13 year-maturity strip bonds with $12,830 cash she now has in her RRSP. If these strip bonds are currently priced to yield 4.25% compounded semi-annually, how many $1,000 denomination bonds can she purchase?

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Q 153Q 153

A $1,000 face value strip bond has 19 years remaining until maturity. What is its price if the market rate of return on such bonds is 3.9% compounded semi-annually?

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Q 154Q 154

Should we conclude that the owner of a strip bond earns nothing until the full face value is received at maturity? Explain.

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Q 155Q 155

If the inflation rate for the next 10 years is 3.5% per year, what hourly rate of pay in 10 years will be equivalent to $15/hour today?

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Q 156Q 156

A city's population stood at 120,000 after 5 years of 3% annual growth. What was the population 5 years previously?

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Q 157Q 157

In 2005 the number of workers in the forest industry was forecast to decline by 3% per year, reaching 80,000 in 2015. How many were employed in the industry in 2005?

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Q 158Q 158

If the inflation rate for the next 10 years is 3% per year, what hourly rate of pay in 10 years will be equivalent to $15 per hour today?

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Q 159Q 159

A pharmaceutical company had sales of $28,600,000 in the year just completed. Sales are expected to decline by 4% per year for the next three years until new drugs, now under development, receive regulatory approval. Then sales should grow at 8% per year for the next four years. What are the expected sales for the final year of the seven year period?

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Short Answer

Q 160Q 160

The late 1970s and early 1980s were years of historically high rates of inflation in Canada. For the years 1978, 1979, 1980, 1981, and 1982 the rates of inflation were 8.8%, 9.2%, 10.9%, 12.6%, and 10.0%, respectively.
a) Suppose your hourly wage at the beginning of 1978 was $10 per hour. What wage did you need to earn at the end of 1982 just to keep pace with inflation?
b) What percentage of its purchasing power did money lose over these five years?

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Q 161Q 161

A 1995 study predicted that employment in base metal mining would decline by 3.5% per year for the next five years. What percentage of total base metal mining jobs was expected to be lost during the five-year period?

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Q 162Q 162

If two payment streams are equivalent at one interest rate, will they be equivalent at another interest rate?

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Q 163Q 163

Give two examples of advertisements or news items that routinely ignore the time value of money.

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Q 164Q 164

What would be the most convincing way to demonstrate that the replacement stream in Example 8.6A is economically equivalent to the given stream?

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Q 165Q 165

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 166Q 166

Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 167Q 167Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 168Q 168

Scheduled payments of $3,000 due today and $2,000 due in 15 months are to be replaced by two payments-$1,500 due in 15 months and a second payment of undetermined size due in 24 months. What must the second payment be for the two streams to be economically equivalent? Assume that money can earn 6% compounded quarterly.

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Q 169Q 169

A two-payment stream consisting of $1,750 due today and $2,900 due in 18 months is to be replaced by an economically equivalent stream comprised of an undetermined payment due in 9 months and a payment of $3,000 due in 19 months. Calculate the unknown replacement payment if money is worth 4.2% compounded monthly.

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Q 170Q 170

Joe Superstar has just signed a "four-year, $68-million deal" with the Toronto Blue Jays. The terms of the contract include a signing bonus of $4.8 million and salaries of $10 million, $17.2 million, $17.5 million, and $18.5 million in successive years of the contract. The news media always ignore the time value of money when they report the "value" of professional athletes' contracts. What is the economic value of Joe's contract on the date it was signed? Assume that the signing bonus was paid on that date, that the annual salaries will be paid in lump amounts ½ year, 1 ½ years, 2 1/2 years, and 3 ½ years later, and that money is worth 5% compounded semi-annually. Round the answer to the nearest $1,000.

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Q 171Q 171

Patrice defaulted on payments of $1,000 due one year ago and $1,500 due six months ago. A Small Claims Court orders her to make three payments-$800 one month from now, $900 four months from now, and a third payment seven months from now. The third payment is to be determined so that the creditor will end up in the same economic position as if the original payments had been made on time. The court set the fair rate of return at 4.2% compounded monthly. What should the third payment be?

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Q 172Q 172

Miquel was supposed to make three payments of $2,000 each-the first one year ago, the second one year from now, and the third three years from now. He missed the first payment and proposes to pay $3,000 today and a second amount in two years. If money can earn 4.5% compounded semi-annually, what must the second payment be to make the proposed payments equivalent to the scheduled payments?

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Q 173Q 173

The owner of a residential building lot has received two purchase offers. Mrs. A is offering a $20,000 down payment plus $40,000 payable in one year. Mr. B's offer is $15,000 down plus two $25,000 payments due one and two years from now. Which offer has the greater economic value if money can earn 9.5% compounded quarterly? How much more is it worth in current dollars?

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Q 174Q 174

CompuSystems was supposed to pay a manufacturer $19,000 on a date 4 months ago and another $14,000 on a date two months from now. CompuSystems is proposing to pay $10,000 today and the balance in 5 months, when it will receive payment on a major sale to the provincial government. What will the second payment be if the manufacturer requires 6% compounded monthly on overdue accounts?

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Q 175Q 175

Donnelly Excavating has received two offers on a used backhoe that Donnelly is advertising for sale. Offer 1 is for $10,000 down, $15,000 in six months, and $15,000 in 18 months. Offer 2 is for $8,000 down plus two $17,500 payments one and two years from now. What is the economic value of each offer today if money is worth 4.25% compounded semi-annually? Which offer should be accepted?

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Q 176Q 176

Jarmila borrowed $3,000, $3,500, and $4,000 from her grandmother on December 1 in each of three successive years at college. They agreed that interest would accumulate at the rate of 4% compounded semi-annually. Jarmila is to start repaying the loan on June 1 following the third loan. What consolidated amount will she owe at that time?

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Q 177Q 177

An investor has a choice of three investments, 6.85% compounded quarterly, 7% pa, and 6.6% compounded monthly. Which rate should the investor choose?

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Q 189Q 189

How much more will an investment of $10,000 be worth after 25 years if it earns 5% compounded annually instead of 4% compounded annually? Calculate the difference in dollars and as a percentage of the smaller maturity value.

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Q 190Q 190

How much more will an investment of $10,000 be worth after 25 years if it earns 6% compounded annually instead of 5% compounded annually? Calculate the difference in dollars and as a percentage of the smaller maturity value.

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Q 191Q 191

How much more will an investment of $10,000 earning 8% compounded annually be worth after 25 years than after 20 years? Calculate the difference in dollars and as a percentage of the smaller maturity value.

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Q 192Q 192

How much more will an investment of $10,000 earning 8% compounded annually be worth after 15 years than after 10 years? Calculate the difference in dollars and as a percentage of the smaller maturity value.

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Q 193Q 193

What amount today is equivalent to $10,000 four years ago, if money earned 5.5% compounded monthly over the last 4 years?

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Q 194Q 194

Ross has just been notified that the combined principal and interest on an amount that he borrowed 27 months ago at 11% compounded quarterly is now $2297.78. How much of this amount is principal and how much is interest?

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Q 195Q 195

To motivate individuals to start saving at an early age, financial planners will sometimes present the results of the following type of calculation. How much must a 25-year-old individual invest 5 years from now to have the same maturity value at age 55 as an immediate investment of $1,000? Assume that both investments earn 8% compounded annually.

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Q 197Q 197

Daniel makes annual payments of $2,000 to the former owner of a residential lot that he purchased a few years ago. At the time of the fourth from last payment, Daniel asks for a payout figure that would immediately settle the debt. What amount should the payee be willing to accept instead of the last three payments, if money can earn 8.5% compounded semi-annually?

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Q 199Q 199

Suppose an individual invests $1,000 at the beginning of each year for the next 30 years. Thirty years from now, how much more will the first $1,000 investment be worth than the 16

^{th}$1,000 investment if both earn 8.5% compounded annually?Free

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Q 200Q 200

What will be the maturity value of $800 invested at 3.75% compounded quarterly after five years?

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Q 201Q 201

Interest is 3.75% compounded monthly. If you want to have $4,000 in an account in three years, how much should you deposit to that account today?

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Q 202Q 202

Larissa agreed to repay a loan in two years by making a payment of $2,471.84. If interest is 6.5% compounded semi-annually, how much did Larissa borrow?

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Q 203Q 203

A loan of $5,000 is to be repaid by $2,500 in one year, and a final payment in two years. If interest is 6.6% compounded quarterly, what is the size of the final payment?

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Q 204Q 204

A loan is to be repaid two equal payments of $2,000 in one and three years. What single payment today would pay off the loan at 6.5% compounded quarterly?

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Q 205Q 205Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 206Q 206Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 207Q 207Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 208Q 208Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 209Q 209

Mrs. Vandenberg has just deposited $5,000 in each of three savings plans for her grandchildren. They will have access to the accumulated funds on their 19

^{th}birthdays. Their current ages are 12 years, 7 months (Donna); 10 years, 3 months (Tim); and 7 years, 11 months (Gary). If the plans earn 8% compounded monthly, what amount will each grandchild receive at age 19?Free

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Q 210Q 210

A debt of $7,000 accumulated interest at 9.5% compounded quarterly for 15 months, after which the rate changed to 8.5% compounded semi-annually for the next six months. What was the total amount owed at the end of the entire 21-month period?

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Q 211Q 211

A $7,500 loan at 9% compounded monthly requires three payments at 5-month intervals after the date of the loan. The second payment is to be twice the size of the first payment, and the third payment is to be double the amount of the second payment. Calculate the size of the second payment.

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Q 212Q 212

For the five-year period ended December 31, 2006, the Sprott Canadian Equity Fund had the best performance of all diversified Canadian equity funds. It effectively earned a compound annual return of 31.6% compared to the average of 10.1% for over 300 diversified Canadian equity funds with a five-year history. How much more would an initial $1,000 investment in the Sprott Canadian Equity Fund have earned over the five-year period than a $1,000 investment in a fund earning the average rate of return?

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Q 213Q 213

A $6,500 loan at 11.25% compounded monthly is to be repaid by three equal payments due 3, 6, and 12 months after the date of the loan. Calculate the size of each payment.

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Q 214Q 214

Payments of $1,800 and $2,400 were made on a $10,000 variable-rate loan 18 and 30 months after the date of the loan. The interest rate was 11.5% compounded semi-annually for the first 2 years and 10.74% compounded monthly thereafter. What amount was owed on the loan after 3 years?

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Q 215Q 215

Duane borrowed $3,000 from his grandmother five years ago. The interest on the loan was to be 5% compounded semi-annually for the first three years, and 6% compounded monthly thereafter. If he made a $1,000 payment 2½ years ago, what is the amount now owed on the loan?

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Q 216Q 216

A loan of $4,000 at 7.5% compounded monthly requires three payments of $1,000 at 6, 12, and 18 months after the date of the loan and a final payment of the full balance after 2 years. What is the amount of the final payment?

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Q 217Q 217Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 218Q 218

If the present value of $X due eight years from now is 0.5$X, what is the present value of $X due 16 years from now? Answer without using formula (8-2).

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Q 219Q 219

Three equal payments were made 2, 4, and 6 years after the date on which a $9,000 loan was granted at 10% compounded quarterly. If the balance immediately after the third payment was $5,169.81, what was the amount of each payment?

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Q 220Q 220

A $4,000 loan at 5% compounded monthly is to be repaid by three equal payments due 5, 10, and 15 months from the date of the loan. What is the size of the payments?

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Q 221Q 221

A $10,000 loan at 8% compounded semi-annually is to be repaid by three equal payments due 2½, 4, and 7 years after the date of the loan. What is the size of each payment?

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Q 222Q 222

Commercial Finance Co. buys conditional sale contracts from furniture retailers at discounts that provide a 12% compounded monthly rate of return on the purchase price. What total price should Commercial Finance pay for the following three contracts: $950 due in 4 months, $780 due in 6 months, and $1,270 due in 5 months?

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Q 223Q 223

If an investment doubles in nine years, how long will it take to quadruple (at the same rate of return)? (This problem does not require any detailed calculations.)

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Q 224Q 224Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 225Q 225

Given a periodic interest rate of 0.9375%, calculate the nominal interest rate if interest is compounded quarterly.

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Q 226Q 226

Given a periodic interest rate of 0.65%, calculate the nominal interest rate if interest is compounded monthly.

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Q 227Q 227

How much interest is earned by investing $2100 for three years at 4.5% compounded monthly?

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Q 228Q 228

An investor has a choice of two investments, the first for 5.5% compounded daily, and the second for 5.65% pa. Which rate should the investor choose?

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Q 229Q 229

Commercial Finance Co. buys conditional sale contracts from furniture retailers at discounts that provide a 16.5% compounded monthly rate of return on the purchase price. What total price should Commercial Finance pay for the following three contracts: $950 due in 4 months, $780 due in 6 months, and $1,270 due in 5 months?

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Q 230Q 230

If the total interest earned on an investment at 6.6% compounded monthly for 3½ years was $1,683.90, what was the original investment?

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Q 231Q 231

Sam invested $3,000 at 3.5% compounded quarterly. After one year, the rate changed to 3.75% compounded semi-annually. How much will Sam have two years after the initial investment?

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Q 232Q 232Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 233Q 233Calculate the combined equivalent value of the scheduled payments on the indicated dates. The rate of return that money can earn is given in the fourth column. Assume that payments due in the past have not yet been made.

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Q 234Q 234

Maria invested $1,200 at 3.25% compounded monthly. After six months, the rate changed to 3.5% compounded quarterly. How much interest will Maria earn after four years?

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Q 235Q 235

If the total interest earned on an investment at 8.2% compounded semi-annually for 8½ years was $1,175.98, what was the original investment?

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Q 236Q 236

Dr. Sawicki obtained a variable-rate loan of $10,000. The lender required payment of at least $2,000 each year. After nine months the doctor paid $2500, and another nine months later she paid $3,000. What amount was owed on the loan after 2 years if the interest rate was 6.6% compounded monthly for the first year, and 7% compounded quarterly for the second year?

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Q 237Q 237

Sam borrowed $2,000 at 5.5% compounded quarterly. After one year, he paid $1,000 towards the outstanding balance. How much will Sam owe after two years?

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Q 238Q 238

Liam borrowed $3,500 at 6.5% compounded monthly. After six months and one year, he paid $500 towards the outstanding balance. How much did Liam owe after three years?

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Q 239Q 239

A loan is to be repaid two equal payments of $3,000 in six months and 30 months. What single payment in two years would pay off the loan if interest is 6.3% compounded monthly?

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Q 240Q 240

A four-year promissory note with a face value of $2,000, bearing interest at 6% compounded quarterly, was sold 1 ½ years after its issue date to yield the buyer 8% compounded monthly. What amount did the buyer pay for the note?

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Q 241Q 241

Peggy has never made any payments on a 5-year-old loan from her mother at 6% compounded annually. The total interest owed is now $845.56. How much did she borrow from her mother?

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Q 242Q 242

For the 10-year period ended December 31, 2007, the Phillips, Hager & North (PH&N) Canadian Equity Fund had a compound annual return of 11.3% whereas the PH&N U.S. Equity Fund had a compound annual return (after converting to Canadian dollars) of 1.3%. How much more would an initial $1,000 investment have earned over the 10-year period in the Canadian Equity Fund than in the U.S. Equity Fund?

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Q 243Q 243

A loan of $7,000 is to be repaid by two equal payments in six months, and two years. If interest is 5.4% compounded monthly, what is the size of the payments?

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Q 244Q 244

A loan of $8,000 is to be repaid by three payments of $1,500 in one year, and two other payments in two and four years after the date of the loan. The second payment is to be twice that of the third payment. If interest is 4.8% compounded quarterly, what is the size of the last two payments?

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Q 245Q 245

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Q 246Q 246

Calculate the maturity value of the five-year compound-interest GIC whose interest rate for each year is given. Also calculate the dollar amount of interest earned in the fourth year.

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Q 247Q 247

Calculate the maturity value of the five-year compound-interest GIC whose interest rate for each year is given. Also calculate the dollar amount of interest earned in the fourth year.

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Q 248Q 248

Calculate the maturity value of the five-year compound-interest GIC whose interest rate for each year is given. Also calculate the dollar amount of interest earned in the fourth year.

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Q 249Q 249Calculate the maturity value of the five-year compound-interest GIC whose interest rate for each year is given. Also calculate the dollar amount of interest earned in the fourth year.

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Q 250Q 250

A bank offers a five-year escalating rate GIC, paying 2.5%, 2.75%, 2.85%, 3%, and 3.25% respectively, and compounded at the end of each year. How much interest will a $1,000 GIC earn?

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Q 251Q 251

At the same time as compound-interest Canada Savings Bonds were being sold with guaranteed minimum annual rates of 5.25%, 6%, and 6.75% in the first 3 years of their 12-year term, a trust company offered 3-year "Bond-Beater" GICs paying 5.75%, 6.5%, and 7.25% compounded annually in the 3 successive years. If the CSBs earn their minimum interest rates, how much more will $4,000 earn over the 3 years if invested in the GIC?

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Q 252Q 252

On February 1, 2004, Selma purchased a $50,000 compound-interest CSB. The interest rate on the CSB was 1.55% for each of the first two years and 2.675% for the third year. What was the total interest earned on the CSB by the time Selma redeemed the bond on April 1, 2006? (Taken from CIFP course materials.)

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Q 253Q 253

A P32 series of compound-interest Canada Premium Bonds guaranteed interest rates of 2.5%, 3%, 3.5%, 4.25%, and 5% in the first five successive years. The Step-Up version of compound-interest Series 2003 Ontario Savings Bonds was issued at about the same time with interest rates of 2.75%, 3.25%, 3.5%, 4%, and 4.25% in the first five successive years. For a $10,000 investment, which savings bonds will have the greater maturity value after five years? How much greater?

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Q 254Q 254

A $1000.00 face value Series 114 compound interest CSB was redeemed on August 8, 2013. What was its redemption value?

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Q 255Q 255

A $1,000 face value strip bond has 22 years remaining until maturity. What is its price if the market rate of return on such bonds is 6.5% compounded semi-annually?

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Q 256Q 256

If the current discount rate on 15-year strip bonds is 4.75% compounded semi-annually, how many $1,000 face value strips can be purchased with $10,000?

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Q 257Q 257

Wojtek purchased a $10,000 face value strip bond on a date when it had 14 years left until maturity. The purchase price was based on a market yield of 6.2% compounded semi-annually. He sold the bond 4 years later when the market yield was 5.2% compounded semi-annually. What was Wojtek's total gain on the investment?

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Q 258Q 258

To satisfy more stringent restrictions on toxic waste discharge, a pulp mill will have to reduce toxic wastes by 10% from the previous year's level every year for the next five years. What fraction is the target level of the current discharge level?

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Q 259Q 259

If the rate of inflation is expected to be 2.75% per year for the next five years, what hourly rate would a student earning $10 per hour today have to make in five years in order to have the same purchasing power?

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Q 260Q 260

Boris recently turned 30, an event causing him to give thought to some long-range financial planning. He believes that, if he owns a home and is debt-free by age 60, he and his partner can retire and live comfortably on an annual income that is equivalent to $40,000 today. Fill in the cells of the following table with the nominal annual income needed to satisfy this criterion at each age under each of three inflation rate scenarios.

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Q 261Q 261

A current study shows that the demand for widgets is expected to decrease by 3% per year over the next seven years. If production is now 450,000 units, how many units does the company expect to produce in seven years?

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Q 262Q 262

Your client has a choice of either receiving $5,000 two years from now or receiving a lump payment today. If your client can earn 5.4% compounded semi-annually, what amount received today is equivalent to $5,000 in two years? (Taken from CIFP course materials)

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Q 263Q 263

Are two equal payments of size x equivalent to a single payment of 2x made midway between the two scheduled payments? If not, is the equivalent payment larger or smaller than 2x? Explain.

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Q 264Q 264

A loan contract called for a payment after two years of $1,500 plus interest (on this $1,500 only) at 8% compounded quarterly, and a second payment after four years of $2,500 plus interest (on this $2,500) at 8% compounded quarterly. What would you pay to purchase the contract 18 months after the contract date if you require a return of 10.5% compounded semi-annually?

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Q 265Q 265

Payments of $2,400, $1,200, and $3,000 were originally scheduled to be paid 1½ years ago, today, and 15 months from today, respectively. Using 6% compounded quarterly as the rate of return money can earn, what payment six months from now would be equivalent to the three scheduled payments?

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Q 266Q 266

What single payment 6 months from now would be equivalent to payments of $500 due (but not paid) 4 months ago, and $800 due in 12 months? Assume money can earn 7.5% compounded monthly.

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Q 267Q 267

Payments of $2,300 due 18 months ago and $3,100 due in three years are to be replaced by an equivalent stream of payments consisting of $2,000 today and two equal payments due two and four years from now. If money can earn 4.75% compounded semi-annually, what should be the amount of each of these two payments?

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Q 268Q 268

Maynard Appliances is holding a "Fifty-Fifty Sale." Major appliances may be purchased for nothing down and no interest to pay if the customer pays 50% of the purchase price in 6 months and the remaining 50% in 12 months. Maynard then sells the conditional sale contracts at a discount to Consumers Finance Co. What will the finance company pay Maynard for a conditional sale contract in the amount of $1,085 if it requires a return of 14% compounded quarterly?

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Q 269Q 269

Two payments of $5,000 are scheduled six months and three years from now. They are to be replaced by a payment of $3,000 in two years, a second payment in 42 months, and a third payment, twice as large as the second, in five years. What should the last two payments be if money is worth 9% compounded semi-annually?

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Q 270Q 270

Three equal payments were made one, two, and three years after the date on which a $10,000 loan was granted at 10.5% compounded monthly. If the balance immediately after the third payment was $5,326.94, what was the amount of each payment?

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Q 271Q 271

A loan is to be repaid by $1,000 in one year and $1,500 in three years. The borrower has asked to repay $1,000 in two years and a final payment in three years. If money can earn 8% compounded quarterly, what is the size of the final payment?

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Q 272Q 272

Payments of $850 due two years ago and $1,760 due six months ago have not been made. The proposed alternative is two equal payments, three months and nine months from now, that will put the payee in an equivalent economic position allowing that money can earn 5.6% compounded quarterly. What is the amount of each of these payments?

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Q 273Q 273

Jorge is unable to make a $4,500 payment due today. He proposes to settle the obligation by making three equal payments-one today, another in four months, and a third in nine months. What must each payment be to make the proposed payment stream equivalent to the scheduled payment if money can earn 7.2% compounded monthly?

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Q 274Q 274

During its January sale, Furniture City is offering terms of 25% down with no further payments and no interest charges for 6 months when the balance is due. Furniture City sells the conditional sale contracts from these credit sales to a finance company. The finance company discounts the contracts to yield 18% compounded monthly. What cash amount should Furniture City accept on a $1,595 item in order to end up in the same financial position as if the item were sold under the terms of the January sale?

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Q 275Q 275

Payments of $400 due eight months ago and $650 due three months ago were not made. Now the debtor is proposing to "make good" by two future payments that provide for a 7.5% compounded monthly rate of return to the creditor on the missed payments. The first payment will be made in two months. The second payment, twice as large as the first, will be made in seven months. Determine the amount of each payment.

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Q 276Q 276

Two payments of $2,000 each are scheduled for six months from now and two years from now. They are to be re-scheduled as follows: a payment one year from now and a second payment, half the size of the first payment, three years from now. What must the amount of each payment be for the replacement stream to be equivalent to the originally scheduled stream? Assume that money can earn 7.8% compounded semi-annually.

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Q 277Q 277

The scheduled payment stream consists of $5,000 due today and $10,000 due in five years. It is proposed to replace this stream by an economically equivalent stream comprised of three equal payments due one, three, and five years from now. Determine the size of each payment if money is worth 5% compounded annually.

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Q 278Q 278

Two payments of $3,000 each are due today and five years from today. The creditor has agreed to accept three equal payments due one, three, and five years from now if the payments are based on the recognition that money can earn 7.5% compounded monthly. What payments will the creditor accept?

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Q 279Q 279

Three years ago, Andrea loaned $2,000 to Heather. The principal with interest at 13% compounded semi-annually is to be repaid four years from the date of the loan. Eighteen months ago, Heather borrowed another $1,000 for 3½ years at 8% compounded semi-annually. Heather is now proposing to settle both debts with two equal payments to be made one and three years from now. What should the payments be if money now earns 6% compounded quarterly?

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Q 280Q 280

The contract for a $4,000 loan at 9% compounded quarterly requires two payments. The first payment of $2,000 is required two years after the date of the loan. (It is applied to the balance owed after conversion of interest to principal every three months.) A second payment in the amount needed to pay off the loan is due one year later. What price would an investor pay for the contract six months after the date of the loan to earn 10% compounded semi-annually on the purchase price?

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Q 281Q 281

A $5,000 loan at 10% compounded annually is to be repaid by two payments three and five years from the date of the loan. The first payment of $3,000 will be applied to the balance owed after conversion of interest to principal at the end of the first three years. What would an investor pay for the loan contract 20 months after the date of the loan if she requires a rate of return of 9% compounded monthly?

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Q 282Q 282

Four years ago John borrowed $3,000 from Arlette. The principal with interest at 10% compounded semi-annually is to be repaid six years from the date of the loan. Fifteen months ago, John borrowed another $1,500 for 3½ years at 9% compounded quarterly. John is now proposing to settle both debts with two equal payments to be made 2 and 3½ years from now. What should the payments be if money now earns 8% compounded quarterly?

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