Reference no: EM133171404

Questions -

Q1. Jose deposits $75 into a bank account at the end of every month for eight years. During this time, the bank pays 6.75% interest compounded monthly. At the end of the eight years, Jose invests the accumulated amount in a GIC paying 9% compounded semi-annually for a further five years.

a) Determine how much money Jose has at the end of the thirteen years.

b) How much of this is interest?

Q2. Karen wants to have $100,000 fifteen years from now. She will make equal deposits at the end of every month into a bank account paying 7% compounded monthly for eight years. She will then invest the account balance in a GIC where she will be able to earn 10% compounded semiannually for the following seven years.

a) How much must she deposit at the end of each month?

b) How much interest will be included in her $100,000?

Q3. Lucy plans to retire in fifteen years. To supplement her pension in the first five years of retirement, she wants to be able to draw $200 at the end of each month from a retirement fund that she intends to start today. How much must she deposit today in order to carry out her plan if money is worth 6 1/2% compounded monthly?

Q4. Colin and Marie are selling their boat, and they have received two purchase offers as follows:

Offer #1: They can receive $7900 cash.

Offer #2: They can receive $1000 cash as a down payment plus four payments of $2000 at six-month intervals beginning six months from now.

In terms of today's dollar, which offer should they accept if money could earn 10% compounded semi-annually, and how much more is this offer worth to Colin and Marie in terms of today's dollar?

Q5. You are purchasing a residential building lot, and you have two options for payment as follows:

Option #1: You can pay $45,000 cash.

Option #2: You can pay $10,000 cash as a down payment and then make quarterly payments of $2500 at the end of every three months for the next four years.

In terms of today's dollar, which option is better for you and by how much if the money you would use for a cash purchase can earn 8% compounded quarterly during the next four years?

Q6. If money can earn 10% compounded annually for the next twenty years, determine which of the following annuities has the greater economic value today:

Annuity #1: $1000 paid at the end of each year for the next ten years

Annuity #2: 10 annual payments of $2500 with the first payment occurring eleven years from today.

Q7. Starting fifteen years from now, Keith wants to receive payments of $2500 at the end of each month for ten years. To pay for this, he will make equal monthly deposits into a retirement fund at the end of every month for the next fifteen years. If money is expected to be worth 9% compounded monthly over the entire twenty-five years, determine the size of Keith's monthly deposits.

Q8. Maria has accumulated $18,000 in her RRSP. If she contributes $2000 at the end of every six months for the next ten years and $300 per month for the subsequent five years, what amount will she have in her plan at the end of fifteen years? Assume her plan will earn 9% compounded semi-annually for the first ten years and 9% compounded monthly for the next five years.