L10: Compound interest application

Sean invests $2000 at 6% compounded quarterly for three years.  Find the amount of the investment at the end of three years.

• a)     $2382

• b)    $2091

• c)     $2370

• d)    $2391

A non-interest bearing promissory note has a face value of $950.  Find the proceeds of this note if it is discounted 3½ years before its maturity date at 8% compounded quarterly.

• a)     $719.98

• b)    $771.65

• c)     $725.67

• d)    $657.22

A payment of $1500 is due in three months.  Find the equivalent value at nine months if the interest rate is 4% compounded quarterly.

• a)     $1500

• b)    $1530

• c)     $1560

• d)    $1470

How many years will it take $1.00 to triple to $3.00 at an annual rate of 5%.

• a)     28.5 years

• b)    22.5 years

• c)     61.49 years

• d)    70 years

What is the quarterly compounded rate if $1300 accumulates to $1564 in 3 years?

• a.     6.2%

• b.     25.4%

• c.     1.6%

• d.     6.8%

Effective rate is   

• Always the same as the periodic rate

• Decreases with increasing compounding frequency in the nominal rate

• Increases with increasing compounding frequency in the nominal rate

• Does not depend on the compounding in the nominal rate

The effective annual rate for 6.4% compounded quarterly is:

• a)     6.4%

• b)    6.56%

• c)     6.54%

• d)    6.5%

If the effective rate of interest on an investment is 4.8%, what is the nominal rate of interest compounded quarterly?

•    4.54%

• 4.72%

•   1.20%

• 5.23%

Equivalent rates

• Are rates that have the same value

• Are rates that have the same compounding frequency

• Are rates that produce the same future values over the same period of time

• Are rates that have annual compounding

Find the nominal rate of interest compounded quarterly equivalent to 12.3% compounded monthly.

•   3.1%

• 12.4%

• 7.7%

• 12.8%