12MG Chapter 7 Compound Interest and Loans Review Questions

Question 1The annual percentage compound interest rate for this account is: Genevieve sold her car for $4300 and decided to invest it in a savings account.bThe interest accrued was compounded annually. The amount in the account after n years, Acan be modelled by the recurrence relation:_{n}, 1.04% 4% 104% 4$% Question 2 (use information from previous question)The interest earned in the first year is: $172 $4472 $430 $104 Question 3 (use information from previous question)The balance at the end of the first year is $104 $172 $472 $4472 Question 4 (use information from previous question)The balance at the end of the second year is closest to $4651 $4650 $4644 $4472 Question 5An investment of $6000 was placed in an account for 3 years at 4.25% p.a. compounded annually. How much more money would be collected if the investment was compounded quarterly? $32.97 $13.36 $46.33 $52.29 Question 6An interest rate of 4.5% p.a. compounding monthly is equivalent to an effective interest rate of: 4.5% p.a. 4.55% p.a. 4.59% p.a. 4.57% p.a. Use the following information to answer questions 7–9.An amount of $12 000 is invested for a period of 9 monthsat 3%p.a. compounding monthly. The compound interest formula to calculate the future value of an investment over a period of time is Question 7The value of n in the formula would be:9/12 9 1 3 Question 8The value of i in the formula9/12 0.025 0.0025 0.03 Question 9The value of A at the end of the time period would be closest to$12 030 $12 070 $12 273 $15 657 Question 10An investment of $10 000 at the rate of 7% p.a. per annum, compounded quarterly, will reach $14 800 in close to1 year 3 years 4 years 2 years Question 11Warren wishes to invest $10 000 for a period of 5 years (assume 365 days = 1 year) The following investment alternatives are suggested to him. The best investment would becompound interest at 8% p.a. with interest compounded annually compound interest at 7.8% p.a. with interest compounded six-monthly simple interest at 9% p.a. compound interest at 7.7% p.a. with interest compounded daily. Question 12Which of the following compounding rates is equivalent to an effective interest rate of 2.75% p.a.?2.7% compounding six-monthly 2.75% p.a. compounding yearly 2.6% p.a. compounding quarterly 2.6% p.a. compounding monthly |

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