Multiple Choice
Identify the choice that best
completes the statement or answers the question.
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1.
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Rosa invested $600 at 3.9% simple interest. At the investment’s maturity,
its value was $1302. How long was the money invested?
A. | 25 years | B. | 30 years | C. | 35
years | D. | 40 years |
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2.
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Which line of the table shows the correct values for i and n?
Compound Interest Rate per Annum
(%) |
Compounding Frequency
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Term
| Interest Rate per Compounding Period,
i (%) | Number of Compounding Periods, n | 5.4 | semi-annually | 3 years | 0.018 | 6 | 3.7 | weekly | 6 months | 0.000 711... | 104 | 0.9 | monthly | 4.5 years | 0.0075 | 48 | 2.25 | quarterly | 7 years | 0.005 625 | 28 | | | | | |
A. | Line 1 | B. | Line 2 | C. | Line
3 | D. | Line 4 |
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3.
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Use the Rule of 72 to estimate the investment’s doubling time and then
determine the actual doubling time.
Principal (P)
($)
| 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 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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5.
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Determine the future value of weekly payments of $30 into an account that pays
1.75% interest, compounded weekly, for 1 year.
A. | $1570.98 | B. | $1568.20 | C. | $1573.46 | D. | $1572.33 |
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6.
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Determine the future value of quarterly payments of $1000 into an account that
pays 5.1% interest, compounded quarterly, for 19 years.
A. | $126 997.25 | B. | $133 347.11 | C. | $122
552.35 | D. | $123 822.32 |
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7.
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Regular semi-annual payments of $400 are deposited into an account paying 6.15%
interest, compounded semi-annually. If the final value of the account is $46 000, how long was the
money invested?
A. | 26.84 years | B. | 25.33 years | C. | 24.96
years | D. | 24.17 years |
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8.
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Regular quarterly payments of $6000 are deposited into an account paying 3.19%
interest, compounded quarterly. If the final value of the account is $75 000, how long was the money
invested?
A. | 3.12 years | B. | 2.99 years | C. | 2.85
years | D. | 3.27 years |
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9.
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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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10.
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This portfolio was started 4 years ago. What is the portfolio’s current
rate of return?
• Annual deposits of $3000 into an account earning 4%, compounded
annually
• A 4-year $700 GIC averaging 4.5%, compounded semi-annually
A. | 6.73% | B. | 6.52% | C. | 6.16% | D. | 6.90% |
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Short Answer
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1.
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Amir has $2000 to invest. He wants his principal to grow by $400 in 5 years.
What simple interest rate will allow him to meet his goal?
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2.
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Determine the difference in the interest earned at maturity on these two
investments. Who earned the most interest?
• Noor invested $6000 in a GIC for a term of 6
years with a simple interest rate of 6%, paid annually.
• Midori invested $6000 in a GIC for
a term of 6 years with a compound interest rate of 6%, paid annually.
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3.
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How many compounding periods are there for $400 invested for 35 years at 6%
compounded semi-annually?
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Problem
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1.
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In 25 years, Winston wants to have $25 000. He plans to invest less than $8000
now. Which of these investment options would allow him to invest the least and still meet his goal?
Justify your choice. Show your work.
A. 4.8%, compounded semi-annually
B. 4.3%,
compounded monthly
C. 4.65%, compounded quarterly
D. 4.25%, compounded
weekly
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2.
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Leigh and Bruce are hoping to buy a house together in 10 years. They want their
money to grow so they can make a substantial down payment. They each have their own investment
portfolios. | Leigh | Bruce | • The purchase, each year, of a 10-year $350 CSB that earns
3.95%, compounded annually
• A 10-year $5000 GIC that earns 4.35%, compounded
annually.
• Monthly deposits of $150 into an account earning 3.4%, compounded
monthly
| • An investment of $2000 that earns 4.15% compounded semi-annually.
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Quarterly deposits of $600 into an account earning 3.65%
• A 5-year $500 bond that earns
3.25%, compounded annually; reinvested at the end or 5 years into another 5-year bond that earns
3.75%, compounded quarterly | | |
Determine the future value of Bruce’s portfolio and his rate of
return. Show your work.
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