Multiple Choice
Identify the choice that best
completes the statement or answers the question.
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1.
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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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2.
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Determine the interest earned on a 20-year investment with an interest rate of
4.25%, compounded quarterly, if the future value is $100 000.
A. | $56 501.05 | B. | $59 741.77 | C. | $57
066.43 | D. | $58 428.18 |
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3.
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A $6000 investment grows to $7351.81 in 5.5 years. If the investment has
interest compounded monthly, determine the interest rate.
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4.
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Determine the term of a $1000 investment with an interest rate of 1.6%,
compounded daily, if the future value is $1100.
A. | 5.96 years | B. | 6.00 years | C. | 6.04
years | D. | 5.92 years |
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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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This portfolio was started 3 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. | $10 532.48 | B. | $10 780.55 | C. | $11
021.88 | D. | $11 235.58 |
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7.
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Claude has been approved for a $12 400 loan to pay for a new boat. The terms of
the loan state that it must be repaid in 4 years at a simple interest rate of 9.6%. How much interest
must Claude pay on this loan?
A. | $17 892.21 | B. | $4761.60 | C. | $5492.21 | D. | $17 161.60 |
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8.
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Carlos was approved for a mortgage to finance his new house that he purchased
for $325 000. He made a down payment that was 20% of the purchase price. The mortgage is
compounded semi-annually at an interest rate of 4.2%. Carlos will repay the mortgage in 25 with
regular monthly payments. How much was the down payment?
A. | $65 000 | B. | $260 000 | C. | $13
650 | D. | $32 500 |
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9.
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Joanna needs to buy textbooks for school that cost $780. She cannot afford them
now but she has two different options to finance the cost.
Option A: Get a loan from her friend
that must be paid back in 3 months with a $50 fee.
Option B: Use her credit card which charges
18.8%, compounded daily. She plans to make the minimum monthly payment of $10 on the debt for 3
months, then pay off the remaining debt in full.
What annual interest rate does the fee in Option
A equate to if you assume the interest compounds monthly?
A. | 25.1% | B. | 25.6% | C. | 28.2% | D. | 6.4% |
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10.
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Johanna needs a place to live. She can either rent an apartment or buy a new
house. Renting costs $300 per week. She can finance the purchase of a house that costs $280 000 with
a mortage. She has negotiated with the bank a mortgage of 87% of the purchase price at an interest
rate of 3.9%, compounded semi-annually. The term of the mortgage is 15 years and it requires regular
monthly payments. The house depreciates at a rate of 4%. If she moves out after 6 years, what is her
total cost of living in the apartment?
A. | $164 984.20 | B. | $93 600.00 | C. | $21
600.00 | D. | $130 000.00 |
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Short Answer
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1.
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Sonja has $800 to invest. She wants her principal to grow by $100 in 2 years.
What simple interest rate will allow her to meet her goal?
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2.
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Paul deposited $900 into a savings account that earns 5% simple interest, paid
daily. On the same day, his brother Simon deposited $800 into a savings account that earns 7% simple
interest, paid daily. Determine the difference in the interest that the brothers will earn over 1.5
years.
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3.
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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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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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Judith is investing $2000. She wants it to grow to $2500 in 4
years.
a) What annual rate of interest, compounded annually, does Judith need to meet her
goal? Round your answer to two decimal places. Show your work.
b) How would your answer
change if the compounding frequency was daily? Show your work.
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3.
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Anton and Julian started investing at the same time. Anton makes payments of $20
at the end of each week into an investment that earns 6.25%, compounded weekly. Julian made a single
payment into an investment that earns 6.25%, compounded annually.
a) At the end of 3 years,
what is the future value of Anton’s investment?
b) Julian’s investment has the
same future value as Anton’s in 3 years. How much principal did Julian invest?
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