Question 1

In June of 2006, AIC Limited published full-page advertisements focused on the fact that its AIC Advantage Mutual Fund was Canada's "Best Performing Canadian Equity Fund over the 20 years"
ending May 31, 2006. The equivalent annual rate of return during the 20 years was 11.9% compared to 9.9% for the benchmark S&P/TSX Composite Total Return Index. But the advertisement failed to point out that during the second half of that 20-year period, the fund's 9.4% compounded annual return was actually less than the 10.2% growth rate for the S&P/TSX Composite Total Return Index. Furthermore, in the final 5 years of the 20-year period, the fund's 2.4% annual rate of return was far below the index's 9.5% annual growth. The Advantage Fund's five-year performance was even less than the median performance of all Canadian equity mutual funds. In short, AIC was still trying to capitalize on the initial 10 years of truly outstanding performance, even though the Advantage Fund's subsequent 10 years' performance was at best mediocre.
a) What would $10,000 invested in the AIC Advantage Fund on May 31, 1986 have grown to after 20 years?
b) What was this investment worth after the first 10 years?
c) What compound annual rate of return did the AIC Advantage Fund earn during the first 10 years of the
20-year period?
d) What was the overall percent increase in the value of an investment in the AIC Advantage Fund during: (i) The first 10 years?
(ii) The second 10 years?

Accepted Answer

The answer of In June of 2006, AIC Limited published...

Question 2

Searching a Mutual Fund Data Base Follow the instructions in the NET @ssets box earlier in this section to locate the "Mutual Funds" link in the student textbook's OLC. When the globefund. Com page loads, move your cursor over "GLOBE FUND" in the menu bar and select "Fund Selector" from the drop-down list. In the "Option C" area, you can enter the name of a particular fund. Enter "RBC Canadian Dividend" and click on "Go."
The table that loads has several tabs along its top. Select "Long-term." This brings up another table with columns giving the fund's compound annual return for 3-year, 5-year, and 10-year periods ending on the last business day of the previous month. How much would $10,000 invested in this fund 10 years earlier be worth at the end of the previous month? Repeat for the "IA Group Dividends" and the "Trans IMS Canadian Growth" funds.

Accepted Answer

The answer of Searching a Mutual Fund Data Base Follow...

Question 3

Under what circumstance does the value calculated for n equal the number of years in the term of the loan or investment?

Accepted Answer

The answer of Under what circumstance does the value calculated...

Question 4

Which investment scenario requires more time: "$1 growing to $2" or "$3 growing to $5"? Both investments earn the same rate of return. Justify your choice.

Accepted Answer

The answer of Which investment scenario requires more time: "$1...

Question 5

How long did it take $4625 earning 7.875% compounded annually to grow to $8481.61?

Accepted Answer

The answer of How long did it take $4625 earning...

Question 6

$5000 invested in a GIC earning 3.7% compounded semiannually matured at$5789.73. What was the term of the GIC?

Accepted Answer

The answer of $5000 invested in a GIC earning 3.7%...

Question 7

The current balance on a loan is $3837.30. If the interest rate on the loan is 10% compounded monthly, how long ago was the $2870 loan made?

Accepted Answer

The answer of The current balance on a loan is...

Question 8

Rounded to the nearest month, how long will it take a town's population to:
a) Grow from 32,500 to 40,000 if the annual growth rate is 3%?
b) Shrink from 40,000 to 32,500 if the annual rate of decline is 3%?

Accepted Answer

The answer of Rounded to the nearest month, how long...

Question 9

When discounted to yield 10.5% compounded monthly, a $2600 three-year promissory note bearing interest at 12.25% compounded annually was priced at $3283.57. How long after the issue date did the discounting take place?

Accepted Answer

The answer of When discounted to yield 10.5% compounded monthly,...

Question 10

The proceeds from the sale of a $4500 five-year promissory note bearing interest at 9% compounded quarterly were $6055.62. How long before its maturity date was the note sold if it was discounted to yield 10.5% compounded monthly?

Accepted Answer

The answer of The proceeds from the sale of a...

Question 11

A $4000 loan at 7.5% compounded monthly was settled by a single payment of $5000 including accrued interest. Rounded to the nearest day, how long after the initial loan was the $5000 payment made? For the purpose of determining the number of days in a partial month, assume that a full month has 30 days.

Accepted Answer

The answer of A $4000 loan at 7.5% compounded monthly...

Question 12

Consider the Province of British Columbia strip bond in Table 9.1.
a) Calculate the bond's market price on June 1, 2009 based on the quoted yield of 4.311% compounded semiannually.
b) What would the price be one year later if the bond's yield remains the same?

Accepted Answer

The answer of Consider the Province of British Columbia strip...

Question 13

Consider the Province of Ontario strip bond in Table 9.1.
a) Calculate the bond's market price on June 1, 2009 based on the quoted yield of 5.081% compounded semiannually.
b) What would the price be on June 1, 2015 if the bond's yield remains the same?

Accepted Answer

The answer of Consider the Province of Ontario strip bond...

Question 14

Consider the Province of Newfoundland strip bond in Table 9.1.
a) Calculate the bond's yield to four-figure accuracy on June 1, 2009, based on the quoted price of $48.550.
b) What would the yield be one year later if the bond's price remains the same?

Accepted Answer

The answer of Consider the Province of Newfoundland strip bond...

Question 15

Consider the Bell Canada strip bond maturing May 15, 2032, in Table 9.1.
a) Calculate the bond's yield to four-figure accuracy on June 1, 2009 based on the quoted price of $26.40.
b) What would the yield be one year later if the bond's price remains the same?

Accepted Answer

The answer of Consider the Bell Canada strip bond maturing...

Question 16

What is the effective interest rate corresponding to a nominal annual rate of:
a. 6% compounded semiannually?
b. 6% compounded quarterly?
c. 6% compounded monthly?

Accepted Answer

The answer of What is the effective interest rate corresponding...

Question 17

What is the effective interest rate corresponding to a nominal annual rate of:
a) 9% compounded semiannually?
b) 9% compounded quarterly?
c) 9% compounded monthly?

Accepted Answer

The answer of What is the effective interest rate corresponding...

Question 18

Lisa is offered a loan from a bank at 7.2% compounded monthly. A credit union offers similar terms but a rate of 7.4% compounded semiannually. Which loan should she accept? Present calculations that support your answer.

Accepted Answer

The answer of Lisa is offered a loan from a...

Question 19

Camille can obtain a residential mortgage loan from a bank at 6.5% compounded semiannually, or from an independent mortgage broker at 6.4% compounded monthly. Which source should she pick if other terms and conditions of the loan are the same? Present calculations that support your answer.

Accepted Answer

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

Question 20

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 5.75%. What nominal annual rates should it quote for the three compounding options?

Accepted Answer

The answer of Columbia Trust wants its annually, semiannually, and...

Quiz 9: Compound Interest: Further Topics and Applications

Under what circumstance does the value calculated for n equal the number of years in the term of the loan or investment?

Which investment scenario requires more time: "$1 growing to $2" or "$3 growing to $5"? Both investments earn the same rate of return. Justify your choice.

How long did it take $4625 earning 7.875% compounded annually to grow to $8481.61?

$5000 invested in a GIC earning 3.7% compounded semiannually matured at$5789.73. What was the term of the GIC?

The current balance on a loan is $3837.30. If the interest rate on the loan is 10% compounded monthly, how long ago was the $2870 loan made?

Rounded to the nearest month, how long will it take a town's population to: a) Grow from 32,500 to 40,000 if the annual growth rate is 3%? b) Shrink from 40,000 to 32,500 if the annual rate of decline is 3%?

When discounted to yield 10.5% compounded monthly, a $2600 three-year promissory note bearing interest at 12.25% compounded annually was priced at $3283.57. How long after the issue date did the discounting take place?

The proceeds from the sale of a $4500 five-year promissory note bearing interest at 9% compounded quarterly were $6055.62. How long before its maturity date was the note sold if it was discounted to yield 10.5% compounded monthly?

Consider the Province of British Columbia strip bond in Table 9.1. a) Calculate the bond's market price on June 1, 2009 based on the quoted yield of 4.311% compounded semiannually. b) What would the price be one year later if the bond's yield remains the same?

Consider the Province of Ontario strip bond in Table 9.1. a) Calculate the bond's market price on June 1, 2009 based on the quoted yield of 5.081% compounded semiannually. b) What would the price be on June 1, 2015 if the bond's yield remains the same?

Consider the Province of Newfoundland strip bond in Table 9.1. a) Calculate the bond's yield to four-figure accuracy on June 1, 2009, based on the quoted price of $48.550. b) What would the yield be one year later if the bond's price remains the same?

Consider the Bell Canada strip bond maturing May 15, 2032, in Table 9.1. a) Calculate the bond's yield to four-figure accuracy on June 1, 2009 based on the quoted price of $26.40. b) What would the yield be one year later if the bond's price remains the same?

What is the effective interest rate corresponding to a nominal annual rate of: a. 6% compounded semiannually? b. 6% compounded quarterly? c. 6% compounded monthly?

What is the effective interest rate corresponding to a nominal annual rate of: a) 9% compounded semiannually? b) 9% compounded quarterly? c) 9% compounded monthly?

Lisa is offered a loan from a bank at 7.2% compounded monthly. A credit union offers similar terms but a rate of 7.4% compounded semiannually. Which loan should she accept? Present calculations that support your answer.

Camille can obtain a residential mortgage loan from a bank at 6.5% compounded semiannually, or from an independent mortgage broker at 6.4% compounded monthly. Which source should she pick if other terms and conditions of the loan are the same? Present calculations that support your answer.

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 5.75%. What nominal annual rates should it quote for the three compounding options?