Compound Interest and Regular Payments

Transcription

1 Foundations of Math 12 Unit 1 Finance- Investing Money 5.1 Compound Interest and Regular Payments Compound Interest and Regular Payments Angus wants to save for a trip to Australia. Every six months he is able to put $1000 into a CD paying 3.5% interest compounded semi-annually. How much would Angus have saved after 4 years? Use the finance application on the calculator to confirm the answer that we just calculated algebraically. 5.2 Using Technology to determine Future Value with Regular payments Joanne is saving for a trip to Europe in two years. She is able to put $500 a month into a special vacation fund that will pay her 4.75% interest compounded annually. How much will she have in the account after two years? How much interest did she earn in the two years? Use the finance application on the calculator to find these answers. Lesson 5 Page 1 of 5 Unit 1

2 5.3 Using Technology to determine Future Value with Regular payments Colby puts $1500 into an investment fund every 2 months. At the end of five years he has $50000 in the account. What annual rate of interest did he earn on his investment if it was compounded quarterly? How much interest did he earn over the five years? Use the finance application on the calculator to find these answers Using Technology to determine Future Value with Regular payments Randi just started her career in teaching and would like to have $ in her TFSA in 30 years when she retires. Her TFSA will pay her a fixed rate of 5.5% compounded annually. What regular payment must Randi make at the end of each year to have $ in her TFSA in 30 years? Use the finance application on the calculator to find these answers. 5.5 Using Technology to determine Future Value with Regular payments On Geoff's 25th birthday he started to make regular payments of $2000 into an CD at the end of every three months in order to save for a new truck. At what age will he at least $21500 if his investment earns 7% annual interest compounded monthly? How much interest would he have earned during this time? Use the finance application on the calculator to find these answers. Lesson 5 Page 2 of 5 Unit 1

3 5.6 Using Technology to determine the future value Sam invested $2500 at the end of each year into a GIC that earned an annual rate of interest of 4.5% compounded annually. Jack made a one-time investment at the end of the first year at the same compounded rate. a) If the future value of both investments was the same at the end of the five years, what was the future value? b) What present value did Jack invest five years ago? c) Who earned more interest? Explain why. 5.7 Using Technology to make fixed rate investing decisions Betty began to put money in fixed rate investments fifteen years ago to build her retirement portfolio. She purchased a $1000 Canada Savings Bond (CSB) at the end of each year for the 15 years. The first eight CSB earned an annual rate of 3.75% compounded annually; the last seven CSB earned 4.35% compounded annually. Five years ago she bought a $7500 GIC that paid 2.75% annual interest compounded quarterly. What is the value of her portfolio after the last fifteen years? She then took her entire portfolio and put it into a TFSA that paid 5% compounded monthly. How long would it take the TFSA to double in value? Lesson 5 Page 3 of 5 Unit 1

4 5.8 Using Technology to compare Rates of Return Gillian wanted to compare the rate of return on her investments she had made during the past 10 years. She had made three different types of investments. She had put $10000 into a 10 year GIC that had paid 3.85% compounded monthly. Her second investment was her savings account that paid 2.1% compounded monthly. She had deposited $100 into the account each week. Her third investment was a fixed rate Bond Fund that paid 2.75% interest compounded annually. She put $3000 a year into the fund. 5.9 Using Technology for Financial calculations Anne just retired and has $ in an investment that pays an annual interest rate of 13% compounded annually. She would like to receive equal monthly payments from the investment for the next 20 years. At the end of the 20 years the investment would have a zero balance. How much would each monthly payment be? Lesson 5 Page 4 of 5 Unit 1

5 5.10 Using Technology for Financial calculations Bruce's mother set up an investment account when she was 25 years old. She invested $100 per month and earned an average annual rate of interest of 7.5% compounded annually. She just turned 65, so she redeemed the investment and put the entire amount into an investment vehicle that paid an annual interest rate of 5.5% compounded semi-annually and will pay her equal monthly amounts for the next 20 years. At the end of the 20 years the investment would have a zero balance. How much will each monthly payment be? Lesson 5 Page 5 of 5 Unit 1