Question 1

Rounding up to the nearest month, for how long will a $100,000 fund sustain beginning-of-the-month withdrawals of $700 if the fund earns 6% compounded monthly?

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The answer of Rounding up to the nearest month, for...

Question 2

Another type of sales promotion for vehicles is to advertise the choice between a "Cash Purchase Price" or "0% Purchase Financing." The tiny print at the bottom of a GM Canada full-page advertisement included the statement: "The GMAC purchase finance rates are not available with and are not calculated on the 'Cash Purchase Price' shown. The difference between the price for the GMAC purchase finance offer and the 'Cash Purchase Price' offer is deemed under provincial laws to be a cost of financing." In other words, there are two prices for a vehicle-a lower price if you pay cash and a higher price if you want to take advantage of the "0% financing." An additional disconcerting aspect of this type of promotion is that the higher price for the 0% financing is usually not quoted in the advertisement. Rather, it must be negotiated with the dealer.
Suppose the Cash Purchase Price of a car is $23,498, and the price that qualifies for full 0% financing (with 48 monthly payments) turns out to be $26,198. What effective interest rate will you be paying for the "0% financing?"

Accepted Answer

The answer of Another type of sales promotion for vehicles...

Question 3

An advertisement for new vehicles offered "1.9% 12-month financing or $2,000 cash back." A truck buyer financed $17,000 at the low interest rate instead of paying $15,000 cash (after the $2,000 rebate). What was the effective rate of interest on the loan if the foregone cash rebate was treated as part of the cost of financing? (The 1.9% interest rate was a monthly compounded nominal annual rate.)

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The answer of An advertisement for new vehicles offered "1.9%...

Question 4

How much must be invested at the beginning of each year in order to accumulate $750,000 after 25 years? The invested funds earn 6% compounded annually.

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The answer of How much must be invested at the...

Question 5

An advertisement for Ford trucks offered "2.9% financing (for 48 months) or $2,000 cash back." A truck buyer financed $20,000 at the low interest rate instead of paying $18,000 cash (after the $2,000 rebate). What was the effective rate of interest on the loan if the foregone cash rebate is treated as part of the cost of financing? (The 2.9% interest rate is a monthly compounded nominal annual rate.)

Accepted Answer

The answer of An advertisement for Ford trucks offered "2.9%...

Question 6

If $100,000 will purchase a 20-year annuity paying $830 at the end of each month, what monthly compounded nominal rate and effective rate of interest will the invested funds in the annuity earn?

Accepted Answer

The answer of If $100,000 will purchase a 20-year annuity...

Question 7

If $100,000 will purchase a 20-year annuity paying $739 at each month's end, what monthly compounded nominal rate and effective rate of interest are earned by the funds?

Accepted Answer

The answer of If $100,000 will purchase a 20-year annuity...

Question 8

After 10½ years of contributions of $2,000 at the end of every six months to an RRSP, the accumulated amount stood at $65,727.82. What semi-annually compounded nominal rate and effective annual rate of return were earned by the funds in the RRSP?

Accepted Answer

The answer of After 10½ years of contributions of $2,000...

Question 9

A major daily newspaper charges $260 (paid in advance) for an annual subscription, or $26 per month payable at the end of each month to the carrier. What is the effective interest rate being charged to the monthly payment subscribers?

Accepted Answer

The answer of A major daily newspaper charges $260 (paid...

Question 10

$2,000 will be contributed to an RRSP at the end of every six months for 20 years. What effective rate of return must the funds in the plan earn if it is to be worth $250,000 at the end of the 20 years?

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The answer of $2,000 will be contributed to an RRSP...

Question 11

What beginning-of-month withdrawals can a $400,000 RRIF (Registered Retirement Income Fund) sustain for 20 years if the investments within the RRIF earn 3.6% compounded monthly?

Accepted Answer

The answer of What beginning-of-month withdrawals can a $400,000 RRIF...

Question 12

In an insurance settlement for bodily injury, a court awarded Mr. Goodman $103,600 for two years' loss of wages of $4,000 per month plus interest on the lost wages to the end of the two years. What effective rate of interest has the court allowed on the lost wages?

Accepted Answer

The answer of In an insurance settlement for bodily injury,...

Question 13

After contributing $2,000 at the end of each quarter for 13¾ years, Foster has accumulated $205,064 in his RRSP. What effective annual rate of return was earned by the RRSP over the entire period?

Accepted Answer

The answer of After contributing $2,000 at the end of...

Question 14

What maximum annual withdrawals will a $200,000 fund earning 5% compounded annually sustain for 20 years if the withdrawals are made: a) At the beginning of each year b) At the end of each year

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The answer of What maximum annual withdrawals will a $200,000...

Question 15

For $100,000, Royal Life Insurance Co. will sell a 20-year annuity paying $802.76 at the end of each month. What monthly compounded nominal rate and effective rate of return does the annuitant (the buyer of the annuity) earn on the invested funds?

Accepted Answer

The answer of For $100,000, Royal Life Insurance Co. will...

Question 16

Vijay purchased a Government of Nova Scotia bond for $1,050. The bond will pay $35 interest to Vijay at the end of every six months until it matures in seven years. On the maturity date the bond will pay back its $1,000 face value (as well as the interest payment due on that date.) What semi-annually compounded rate of return will Vijay earn during the seven years?

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The answer of Vijay purchased a Government of Nova Scotia...

Question 17

What semi-annually compounded rate and effective rate of interest are being charged on a $12,000 loan if semi-annual payments of $1204.55 will repay the loan in seven years?

Accepted Answer

The answer of What semi-annually compounded rate and effective rate...

Question 18

A $9,000, four-year term loan requires monthly payments of $220.77. What are the monthly compounded nominal rate and the effective rate of interest on the loan?

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The answer of A $9,000, four-year term loan requires monthly...

Question 19

What quarterly compounded nominal rate and effective rate of interest are being charged on a $5,000 loan if quarterly payments of $302.07 will repay the loan in 5½ years?

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The answer of What quarterly compounded nominal rate and effective...

Question 20

A finance company paid a furniture retailer $1934 for a conditional sale contract requiring 12 end-of-month payments of $175. What effective rate of return does the finance company earn on the purchase?

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The answer of A finance company paid a furniture retailer...

Quiz 11: Annuities: Periodic Payment, Number of Payments, and Interest Rate