Multiple Choice
Identify the choice that best
completes the statement or answers the question.
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1.
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For 3 years, regular weekly payments of $50 are deposited into an account that
compounds interest weekly. If the final value of the account is $8600, what was the interest
rate?
A. | 6.51% | B. | 6.43% | C. | 6.23% | D. | 6.45% |
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2.
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Determine the interest earned on a simple interest investment with a 15-year
term at 5.7% on a deposit of $25 000.
A. | $21 250 | B. | $22 500 | C. | $22
125 | D. | $21 375 |
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3.
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How many compounding periods are there for $2200 invested for 3.5 years at 3.5%
compounded monthly?
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4.
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Which line of the table shows the correct values for i and n?
Compound Interest Rate per Annum
(%) |
Compounding Frequency
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Term
| Interest Rate per Compounding Period,
i (%) | Number of Compounding Periods, n | 5.4 | semi-annually | 3 years | 0.018 | 6 | 3.7 | weekly | 6 months | 0.000 711... | 104 | 0.9 | monthly | 4.5 years | 0.0075 | 48 | 2.25 | quarterly | 7 years | 0.005 625 | 28 | | | | | |
A. | Line 1 | B. | Line 2 | C. | Line
3 | D. | Line 4 |
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5.
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Determine the present value of a 3-year CSB with an interest rate of 3.9%,
compounded semi-annually, if the future value is $2000.
A. | $1786.43 | B. | $1814.49 | C. | $1779.51 | D. | $1781.18 |
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6.
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Determine the future value of monthly payments of $200 into an account that pays
4.6% interest, compounded monthly, for 15 years.
A. | $56 879.79 | B. | $46 538.01 | C. | $64
636.13 | D. | $51 708.90 |
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7.
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Regular weekly payments of $20 are deposited into an account paying 1.5%
interest, compounded weekly. If the final value of the account is $5000, how long was the money
invested?
A. | 4.64 years | B. | 5.30 years | C. | 4.96
years | D. | 4.10 years |
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8.
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This portfolio was started 10 years ago. What is the current value of the
portfolio?
• A $1200 GIC that earns 2.65%, compounded quarterly
• Monthly deposits
of $250 into an account earning 1.75%, compounded monthly
A. | $35 945.21 | B. | $32 578.18 | C. | $33
500.69 | D. | $34 321.78 |
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9.
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This portfolio was started 25 years ago. What is the current value of the
portfolio?
• Quarterly deposits of $650 into an account earning 3.25%, compounded
quarterly
• A $15 000 investment averaging 4.5%, compounded annually
A. | $138 653.40 | B. | $140 970.05 | C. | $142
368.70 | D. | $144 773.40 |
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10.
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This portfolio was started 5 years ago. What is the portfolio’s current
rate of return?
• Semi-annual deposits of $4000 into an account averaging 5.85%, compounded
semi-annually
• A 5-year $19 000 bond earning 6.55%, compounded monthly
A. | 22.38% | B. | 22.10% | C. | 21.90% | D. | 22.54% |
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Short Answer
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1.
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Siobhan wants to buy a new motorcycle but she has only $7000, half the amount
she needs. When can Siobhan buy the motorcycle if she invests her money at 5.3%, compounded monthly,
to the nearest year?
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2.
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Angele estimates that she will need $9800 for a vacation she is planning for 18
months from now. Suppose she earns an average of 3.55% on her investments and the interest is
compounded quarterly. Determine the ratio of future value to present value.
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3.
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This portfolio was started 8 years ago. How much interest has the portfolio
earned?
• Monthly deposits of $250 into an account earning 1.5%, compounded
monthly
• A $3750 investment averaging 2.85%, compounded quarterly
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Problem
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1.
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a) Doreen plans to invest $20 000 and is researching the best deal
online. The table below shows two investment options, with their interest rates and terms. Compare
these options by their future values at maturity. Show your work. Investment Option | Simple Interest Rate | Term
(years) | C | 2.5% paid quarterly | 14 | D | 3.8% paid
semi-annually | 9 | | | |
b) Suppose that Doreen decided to invest her money for 1.5
more years. Would your ranking of the investment options change? Explain.
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2.
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A bank is offering a simple interest rate of 3% for a guaranteed investment
certificate with a 4-year term.
a) What principal would you need to invest if you wanted to
have $2000 at the end of the term? Show your work.
b) How long will it take for the value
of the GIC to be $2500? Show your work.
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