Multiple Choice
Identify the choice that best
completes the statement or answers the question.
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1.
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Freda has $14 000 to invest for 10 years. Which investment option will earn her
more interest? How much more interest?
A. 2.5% simple interest, paid daily
B.
1.25% compound interest, paid annually
A. | Option A: $1648.21 | B. | Option B: $1335.96 | C. | Option A:
$1524.91 | D. | Option B: $1798.50 |
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2.
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Which investment will earn the most interest?
A. $200 invested for 4
years at a compound interest rate of 2%
B. $300 invested for 3 years at a simple interest
rate of 2%
C. $250 invested for 2 years at a compound interest rate of 2%
D. $200
invested for 4 years at a simple interest rate of 2%
A. | Option A | B. | Option B | C. | Option
C | D. | Option D |
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3.
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Use the Rule of 72 to estimate the investment’s doubling time and then
determine the actual doubling time.
Principal (P)
($)
| Compound Interest Rate per Annum (%) |
Compounding
Frequency
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Term
| 5000 | 4.5 | monthly | 5 years | | | | |
A. | 16 years; 15.43 years | B. | 16 years; 15.57 years | C. | 16 years; 15.89
years | D. | 16 years; 15.73 years |
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4.
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Determine the present value of a 10-year GIC with an interest rate of 5.6%,
compounded monthly, if the future value is $10 000.
A. | $5769.74 | B. | $5719.54 | C. | $5662.89 | D. | $5744.47 |
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5.
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Determine the term of a $26 000 investment with an interest rate of 2.95%,
compounded monthly, if the future value is $100 000.
A. | 44.44 years | B. | 45.72 years | C. | 43.20
years | D. | 40.86 years |
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6.
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A 10-year bond has an interest rate of 5.5%, compounded annually, and a future
value of $1000. Determine the ratio of future value to present value.
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7.
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A 15-year investment has an interest rate of 3.75%, compounded monthly, and a
future value of $95 000. Determine the ratio of future value to present value.
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8.
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Determine the regular annual payment required to have $5000 at the end of 12
years if the investment earns 3% interest, compounded annually.
A. | $320.08 | B. | $333.82 | C. | $348.61 | D. | $352.31 |
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9.
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This portfolio was started 10 years ago. What is the current value of the
portfolio?
• Semi-annual deposits of $3000 into an account averaging 3.4%, compounded
semi-annually
• A $25 000 bond earning 7.8%, compounded monthly
A. | $120 534.88 | B. | $122 183.68 | C. | $124
430.38 | D. | $125 153.18 |
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10.
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This portfolio was started 6 years ago. What is the portfolio’s current
rate of return?
• Monthly deposits of $180 into an account earning 3.25%, compounded
monthly
• A 6-year $1600 investment averaging 6.2%, compounded annually
A. | 13.90% | B. | 13.50% | C. | 14.25% | D. | 14.12% |
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Short Answer
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1.
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How many compounding periods are there for $1000 invested for 8 years at 4.8%
compounded monthly?
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2.
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Ramona has created the following investment portfolio:
• At the end of
each year, for the past 5 years, she has purchased a 5-year $2000 CSB, with an average annual
interest rate of 3.25%, compounded annually.
• She has a $8000 GIC, with a 20-year term,
that she purchased 20 years ago and earned 5.95%, compounded monthly.
What is the current value of
her portfolio?
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3.
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Malcolm opened this portfolio when he was 20.
• A $1200 GIC that earns
2.65%, compounded quarterly
• Monthly deposits of $250 into an account earning 1.75%,
compounded monthly
When he turned 30, he cashed in the whole portfolio and bought a bond earning
7.5%, compounded semi-annually. What will be the value of the bond when Malcolm turns 65?
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Problem
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1.
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Alicia invested in a GIC with increasing interest, compounded annually, for 2
years. After the first year, the interest rate increases by 1%. The growth of the investment is shown
in the table below. What is the annual rate of interest each year? What was the principal that Alicia
invested? Show your work. End of Year | Value of Investment ($) | 1 | 496.80 | 2 | 519.16 | | |
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2.
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Eight months ago, Kevin invested money at 4.9%, compounded weekly. If his
investment is worth $189.07 today, how much interest has the account earned in the past 8 months?
Show your work.
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