## Description

1. How long did it take $4,625 earning 7.875% compounded annually to grow to $8,481.61?

2. The current balance on a loan is $3,837.30. If the interest rate on the loan is 10% compounded monthly, how long ago was the $2,870 loan made?

3. What is the remaining time until the maturity date of a $10,000 strip bond if it is purchased for $4,011.33 to yield 6.4% compounded semiannually until maturity?

4. A few years ago, Avtar invested $6,000 in a compound-interest GIC that earned 4.5% compounded semiannually. He recently received the maturity value of $7,168.99. What was the term of the GIC?

5. Rounded to the nearest month, how long will it take an investment to double if it earns: a. 8.4% cm? b. 10.5% csa?

6. Rounded to the nearest month, how long will it take an investment to quadruple if it earns: a. 8% ca? b. 9% csa?

7. Which interest rate would you prefer to earn on a three-year GIC: 6% compounded monthly, 6.1% compounded quarterly, 6.2% compounded semiannually or 6.3% compounded annually?

8. What is the effective rate of interest on a credit card that calculates interest at a rate of 1.8% per month?

9. If the nominal rate of interest paid on a savings account is 2% compounded monthly, what is the effective rate of interest?

10. If a $5,000 investment grew to $6450 in 30 months of monthly compounding, what effective rate of return was the investment earning?

11. Lisa is offered a loan from a bank at 7.2% compounded monthly. A credit union offers similar
term, but at a rate of 7.4% compounded semiannually. Which loan should she accept? Present
calculations that support your answer.

## Explanation & Answer

See attached

1. How long did it take $4,625 earning 7.875% compounded annually to grow to $8,481.61?

FV= PV(1+r)n

n= ln(FV/PV)/ ln(1+r)

n=ln(8481.61/4625)/ln(1+7.875%)

n=8 years

2. The current balance on a loan is $3,837.30. If the interest rate on the loan is 10% compounded

monthly, how long ago was the $2,870 loan made?

FV= PV(1+r)n

n= ln(FV/PV)/ ln(1+r)

n=ln(8481.61/4625)/ln(1+10%/12)

n= 35 months

3. What is the remaining time until the maturity date of a $10,000 strip bond if it is purchased for

$4,011.33 to yield 6.4% compounded semiannually until maturity?

FV= PV(1+r)n

n= ln(FV/PV)/ ln(1+r)

n=ln(10000/4011.33)/ln(1+6.4%/2)

n= 29 ...