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QUESTION 25 (5 marks) A financial institution offers two investment options: Option 1: 7% p.a. compounding quarterly Option 2: 6.8% p.a. compounding monthly Use the effective interest rate formula to determine the option that will provide the better return.
QUESTION 15 Which of the following investment options gives the best return? (A) 5.93% p.a. compounding daily (B) 5.95% p.a. compounding monthly (C) 5.97% p.a. compounding quarterly (D) 5.99% p.a. compounding six-monthly
QUESTION 4 (6 marks) The graph shows two investment models. Model 1 is compounding annually while Model 2 increases linearly by $126 per year. Model 1 2750 __- Model 2 Amount ($) 2020 2038 Year Determine the difference between the two investment strategies in 2030 to the nearest dollar.
QUESTION 17 (4 marks) An investment of $50 000 that compounds interest monthly is modelled by the recurrence relation A . 1=1.003754 where Ay =50 000. a) What would be the advertised interest rate per annum compounding monthly? [2 marks] b) How many months would it take for the value of the investment to exceed $51 000? [2 marks]
QUESTION 12 A reducing balance loan with an initial balance of $6000 is modelled by the recurrence relation Anal = [ + “) A — 400 where n is the number of months. The loan balance at the end of two months is closest to (A) $5100 (B) $5200 (C) $5215 (D) $5230
QUESTION 19 (4 marks) Ngarra compares two investment options and decides option A will provide the better return. ¢ Option A: 5.60% p.a. compounding monthly ¢ Option B: 5.62% p.a. compounding quarterly Use the effective annual rate of interest formula to evaluate the reasonableness of Ngarra’s decision.
QUESTION 7 (5 marks) Five years ago a retiree invested $100 000 in a compound interest account earning 3.8% p.a. compounding monthly. They now intend to use the balance of the account to begin a perpetuity that will return 4% p.a. compounding annually and pay them $6000 each year. Provide advice to the retiree about whether their compound interest investment is large enough to finance the perpetuity.
QUESTION 19 An investment of $10 000 is made at an interest rate of 7.5% per annum compounding half yearly. The number of years it will take for the value of the investment to exceed $18 000 is (A) 7 (B) 8 C) 15 (D) 16
QUESTION 4 (3 marks) You have a savings account with an interest rate of 2.4% per annum paid quarterly. Your bank makes you a new offer. You are entitled to either an increase in the interest rate of 0.5% per annum or to your current interest paid monthly. Determine which option is the most profitable.
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