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Chapter 7.

1 Task:

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Determine the interest rate per compounding period as a decimal.


Time of Length of Interest rate Frequency of
payment annuity per year compounding
end of every 6 months 7 years 5.1% semi-annually

a. 0.85 b. 0.51 c. 0.0255 d. 0.0085

____ 2. Determine the number of compounding periods.


Time of Length of Interest rate Frequency of
payment annuity per year compounding
end of every 6 months 13 years 18.2% semi-annually

a. 52 b. 26 c. 39 d. 78

____ 3. Determine the amount of an ordinary simple annuity of $2450 deposited each month for 8 years
at 19.6% per year compounded monthly.
a. $362 329 124 538.02 c. $101 911.90
b. $4 886 474.19 d. $560 499.12

____ 4. Nye deposits $4500 at the end of each year into an account that earns 4.3% per year compounded
annually. How much interest will Nye have earned at the end of 17 years?
a. $2232.79 b. $32 929.43 c. $38 776.07 d. $128 754.64

____ 5. Elizabeth deposits $225 at the end of each month into an account that earns 4.4% per year
compounded monthly. After 3.5 years, she has earned $746.33 in interest.
What would happen if the time period was twice as long, 7 years?
a. The interest earned would be twice as great.
b. The interest earned would be more than twice as great.
c. The interest earned would increase, but be less than twice as great.
d. The interest earned would not change.

____ 6. Evaluate this expression.

Write your answer to 2 decimal places.


a. 624.12 b. 644.09 c. 104 801.59 d. 7900.21

____ 7. Determine the present value of an ordinary simple annuity that pays $400 for 7 years at 4.3% per
year compounded monthly.
a. $39 123.64 b. $82 657.79 c. $28 970.12 d. $103.81

____ 8. Determine the interest earned by an ordinary simple annuity that pays $900 for 8 years at 6.2%
per year compounded quarterly.
a. $6229.34 b. $8123.43 c. $6693.85 d. $28 450.15

____ 9. Rafeeq borrows money to buy a car.


He will repay the loan by making a payment of $270.87 each month for the next 5 years, at an
interest rate of 3.2% per year compounded monthly.
How much interest will Rafeeq pay?

a. $1346.98 b. $2558.59 c. $1251.93 d. $480.00

____ 10. Rearrange the equation to solve for R.


a.

b.

c.

d.

____ 11. Gerald and Sue-Lang buy a cottage for a selling price of $160 000.
They plan to make a down payment of 15% and take out a mortgage for the rest.
How much is their down payment?
a. $24 000 b. $240 000 c. $15 000 d. $160 000

**#11 is a BONUS**

Problem

12. Kris wants to save $10 000 for a vacation. She deposits $200 at the end of each month in an
account that earns 7.9% per year compounded monthly.
a) What is the amount in the account after 3.5 years?
b) How much interest is earned?
c) Will Kris have enough money saved at the end of 3.5 years?

13. Elena and Kate both plan to save $300 000 to start small business.
Elena starts right away and saves for 4 years by making regular monthly deposits in an account
that earns 6.9% per year compounded monthly.
Kate waits 2 years, then saves for 2 years by making regular monthly deposits in an account that
earns 8.7% per year compounded monthly
a) Determine the monthly deposit for each savings plan.
b) Who earns more interest? Justify your answer
College question from class: I want you to determine the fees for the first year of a college
program (preferably the program and the school of your choice). From this information and the
amount of time you have left before you begin college (10 months), determine how much you
would have to contribute monthly to an account with an interest rate of 0.5% annually,
compounded monthly to have enough to pay for your first year's fees.

Amount of tuition:
i value:
n value:

What did you calculate your R value (repeating payments) to be?

Based on your findings, when should someone begin to save for schooling?

Self Assessment (Circle the answer that fits how you are feeling):

I can use the amount of


a simple annuity Very well Well Mostly A little bit Not at all
formula if I am given
the values to put in
I can determine what
my i and n values
should be when the time Very well Well Mostly A little bit Not at all
interval and
compounding period are
not in years
I can type the equation
for the formula of a
simple annuity into my Very well Well Mostly A little bit Not at all
calculator to give me
accurate results

I am feeling confident Very Confident Mostly Not Really Not


in this unit so far Confident Confident Confident Confident