Multiple Choice
Identify the choice that best
completes the statement or answers the question.
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1.
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Determine the interest earned on a simple interest investment where 2.3%
interest is paid daily for 1 year on $500.
A. | $230 | B. | $1150 | C. | $23 | D. | $11.50 |
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2.
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Principal of $1750 is invested at 2% simple interest, paid semi-annually, for
1.5 years. What is the rate of return?
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3.
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Tenzin has $9000 to invest for 2 years. Which investment option will earn her
more interest? How much more interest?
A. 5% simple interest, paid quarterly
B.
7% compound interest, paid annually
A. | Option A: $401.70 | B. | Option B: $380.47 | C. | Option A:
$359.20 | D. | Option B: $404.10 |
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4.
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Determine the future value and the total interest earned for the
investment.
Principal (P) ($)
| Compound
Interest Rate per Annum (%) |
Compounding Frequency
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Term
| 35 000 | 3.7 | quarterly | 7 years | | | | |
A. | $45 239.99; 10 239.99 | B. | $46 245.18; $11 245.18 | C. | $45 293.23; $10
293.23 | D. | $44 669.12; $9669.12 |
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5.
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Determine the future value and the total interest earned for the
investment.
Principal (P) ($)
| Compound
Interest Rate per Annum (%) |
Compounding Frequency
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Term
| 9000 | 2.25 | semi-annually | 3 years | | | | |
A. | $9728.91; $728.91 | B. | $9696.45; $696.45 | C. | $9626.65;
$625.65 | D. | $9624.84; $624.84 |
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6.
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Use the Rule of 72 to estimate the investment’s doubling time and then
determine the actual doubling time.
Principal (P)
($)
| Compound Interest Rate per Annum (%) |
Compounding
Frequency
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Term
| 700 | 1.7 | weekly | 3.5 years | | | | |
A. | 42.35 years; 40.62 years | B. | 42.35 years; 42.00 years | C. | 42.35 years; 40.78
years | D. | 42.35 years; 41.12 years |
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7.
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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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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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This portfolio was started 4 years ago. What is the current value of the
portfolio?
• A $4000 bond earning 2.9%, compounded semi-annually
• Quarterly
deposits of $650 into an account earning 3.25%, compounded quarterly
A. | $15 410.17 | B. | $15 546.67 | C. | $15
661.37 | D. | $15 868.07 |
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10.
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This portfolio was started 10 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. | $54 463.50 | B. | $53 871.69 | C. | $55
492.65 | D. | $54 129.57 |
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Short Answer
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1.
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A group of alumni invested $50 000 in a charitable trust fund so that their
school can offer scholarships. The interest rate is 7.2%, compounded monthly. How much interest is
available from the trust fund for scholarships each year?
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2.
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Li Ming is planning to buy a house in 10 months. She intends to spend no more
than $20 000 on a down payment. She has $18 000 to invest in a mutual fund that compounds
interest monthly. What average rate of interest will Deborah need in order to meet her goal?
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3.
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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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Problem
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1.
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Predict which investment will earn the greater amount of interest over 2 years.
Explain your prediction, and then verify it. Show your work.
A. $400 in a simple interest
investment at 2%, paid annually
B. $500 in a simple interest investment at 3%, paid
annually
C. $400 in a simple interest investment at 4%, paid annually
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2.
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Ms Desai has $18 000 to invest and is looking at GICs.
• Option A:
5-year GIC at 2.45%, compounded annually.
• Option B: 2-year GIC at 2.2%, compounded
annually; reinvest funds in a 3-year GIC at 3.5%, compounded annually.
Compare the future values
of each option. Which option should Ms Desai choose? What assumptions are you making?
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