Question 1

ABC Ltd. reports that its sales are growing at the rate of 1.3% per month. DEF Inc. reports sales increasing by 4% each quarter. What is each company's effective annual rate of sales growth?

Accepted Answer

The answer of ABC Ltd. reports that its sales are...

Question 2

Suppose the periodic rate for one month is 0.5%. Is the equivalent periodic rate for six months (pick one):
(i) equal to 6(0.5%) = 3%?
(ii) less than 3%?
(iii) greater than 3%?
Answer the question without doing calculations. Explain your choice.

Accepted Answer

The answer of Suppose the periodic rate for one month...

Question 3

You are offered a loan at a rate of 9% compounded monthly. Below what nominal rate of interest would you choose semiannual compounding instead?

Accepted Answer

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

Question 4

To be equivalent to 5.5% compounded annually, what must be the nominal rate with:
a. semiannual compounding?
b. quarterly compounding?
c. monthly compounding?

Accepted Answer

The answer of To be equivalent to 5.5% compounded annually,...

Question 5

What semiannually compounded rate is equivalent to 4% compounded monthly?

Accepted Answer

The answer of What semiannually compounded rate is equivalent to...

Question 6

Craig can buy a three-year compound-interest GIC paying 4.6% compounded semiannually or 4.5% compounded monthly. Which option should he choose? Present calculations that support your answer.

Accepted Answer

The answer of Craig can buy a three-year compound-interest GIC...

Question 7

What monthly compounded rate is equivalent to 6% compounded quarterly?

Accepted Answer

The answer of What monthly compounded rate is equivalent to...

Question 8

Columbia Trust wants its annually, semiannually, and monthly compounded five-year GICs all to have an effective interest rate of 3.75%. What nominal annual rates should it quote for the three compounding options?

Accepted Answer

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

Question 9

What is the significance of two nominal interest rates being equivalent?

Accepted Answer

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Question 10

An oil company wants to drop the effective rate of interest on its credit card by 3%. If it currently charges a periodic rate of 1.7% per month, at what amount should it set the periodic rate?

Accepted Answer

The answer of An oil company wants to drop the...

Question 11

A department store chain currently charges 18% compounded monthly on its credit card. To what amount should it set the monthly compounded annual rate if it wants to add 2% to the effective interest rate?

Accepted Answer

The answer of A department store chain currently charges 18%...

Question 12

What quarterly compounded rate is equivalent to 3.5% compounded semiannually?

Accepted Answer

The answer of What quarterly compounded rate is equivalent to...

Question 13

Camille can obtain a residential mortgage loan from a bank at 5.5% compounded semiannually, or from an independent mortgage broker at 5.4% 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 14

Belleville Credit Union has established interest rates on its three-year GICs so that the effective rate of interest is 4% on all three compounding options. What are the monthly, semiannually, and annually compounded rates?

Accepted Answer

The answer of Belleville Credit Union has established interest rates...

Question 15

Suppose the periodic rate for 6 months is 4%. Is the equivalent periodic rate for three months (pick one):
(i) equal to  ?
(ii) less than 2%?
(iii) greater than 2%?
Answer the question without doing any calculations. Explain your choice.

Accepted Answer

The answer of Suppose the periodic rate for 6 months...

Question 16

A trust company pays 3.5% compounded semiannually on its three-year GICs. For you to prefer an annually compounded GIC of the same maturity, what value must its nominal interest rate exceed?

Accepted Answer

The answer of A trust company pays 3.5% compounded semiannually...

Question 17

What semiannually compounded rate is equivalent to 8.5% compounded quarterly?

Accepted Answer

The answer of What semiannually compounded rate is equivalent to...

Question 18

Banks usually quote residential mortgage interest rates on the basis of semiannual compounding. An independent mortgage broker is quoting rates with monthly compounding. What rate would the broker have to give to match 6.5% compounded semiannually available from a bank?

Accepted Answer

The answer of Banks usually quote residential mortgage interest rates...

Question 19

For a three-year GIC investment, what nominal rate compounded monthly would put you in the same financial position as 5.5% compounded semiannually?

Accepted Answer

The answer of For a three-year GIC investment, what nominal...

Question 20

To be equivalent to 7% compounded quarterly, what must be the nominal rate with:
a. annual compounding?
b. semiannual compounding?
c. monthly compounding?

Accepted Answer

The answer of To be equivalent to 7% compounded quarterly,...

Quiz 9: Compound Interest: Further Topics and Applications