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• ### Compounding interest daily formula

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Test Yourself Chapter 1 Simple and compound interest

Name: ___________________________

All Multiple Choice

| |The yearly interest payable on a deposit of \$250 at 5.5% |B |

| |p.a. simple interest is: | |

| |\$137.50 | |

| |\$13.75 | |

| |\$12.50 | |

| |\$125.00 | |

| |\$17.35 | |

| | | |

| |The interest on \$12 167 invested for 5 years at 2.5% simple|C |

| |interest p.a. would be nearest to: | |

| |\$1220.87 | |

| |\$1521 | |

| |\$1520.88 | |

| |\$152.10 | |

| |\$152.09 | |

| | | |

| |Sarah received \$75 interest on her term deposit of \$450 |B |

| |over 3 years. The simple interest rate per annum was: | |

| |56% | |

| |5.6% | |

| |22% | |

| |0.55% | |

| |11.2% | |

| | | |

| |Tom earned \$504 when he invested \$16 820 for 8 months. His |D |

| |rate of simple interest was: | |

| |0.37% p.a. | |

| |2.00% p.a. | |

| |3.00% p.a. | |

| |4.49% p.a. | |

| |5.00% p.a. | |

| | | |

| |John invested a sum of money, which earned \$750 simple |B |

| |interest at the rate of 6% per annum over 2 years. The | |

| |amount invested was: | |

| |\$88.80 | |

| |\$6250 | |

| |\$3125 | |

| |\$2125 | |

| |None of these. | |

| | | |

| |Cathy invested \$8200 at the rate of 4.5% p.a. It earned |C |

| |\$738 simple interest. The period of investment was: | |

| |6 months | |

| |1 year | |

| |2 years | |

| |2 years 6 months | |

| |3 years | |

| | | |

| |A 500-g packet of chocolate costs \$2.50. Assuming inflation|B |

| |averages 2.8% per annum over each of the next 3 years, how | |

| |much will the chocolate cost in three years? | |

| |\$2.64 | |

| |\$2.72 | |

| |\$2.79 | |

| |\$2.87 | |

| |\$2.95 | |

| | | |

| |An investment of \$10 000 at the rate of 8% per annum, |E |

| |compounded quarterly, will reach \$14 800 in close to: | |

| |1 year | |

| |2 years | |

| |3 years | |

| |4 years | |

| |5 years | |

| | | |

| |An investment of \$10 000 to be invested for a period of 5 |C |

| |years and compounded quarterly at 3.75% p.a. will have a | |

| |future value closest to which of the following: | |

| |\$10 480 | |

| |\$12 020 | |

| |\$12 050 | |

| |\$20 900 | |

| |None of the above. | |

| | | |

| |Tom has the choice of investing his money in compound |E |

| |interest with rests as indicated below. Which situation | |

| |would return him the most interest? | |

| |yearly rests | |

| |six-monthly rests | |

| |quarterly rests | |

| |monthly rests | |

| |daily rests | |

| | | |

| |Use the following information to answer questions 11–13. | |

| | | |

| |An amount of \$12 000 is invested for a period of 9 months | |

| |at 3% p.a. compounded monthly. The compound interest | |

| |formula to calculate the future value of an investment over| |

| |a period of time is: | |

| |[pic] | |

| |The value of T in the formula would be: |A |

| |[pic] | |

| |1 | |

| |3 | |

| |9 | |

| |12 | |

| | | |

| |The value of n in the formula would be: |E |

| |[pic] | |

| |1 | |

| |3 | |

| |9 | |

| |12 | |

| |The value of A at the end of the time period would be |C |

| |closest to: | |

| |\$12 030 | |

| |\$12 070 | |

| |\$12 273 | |

| |\$15 657 | |

| |\$15 714 | |

| | | |

| |The growth of an investment over a period of time is shown |A |

| |as a graph which depicts a straight line. Which of the | |

| |following investments would depict a straight line? | |

| |6% p.a. simple interest | |

| |6% p.a. compounding yearly | |

| |6% p.a. compounding quarterly | |

| |6% p.a. compounding monthly | |

| |6% p.a. compounding daily | |

| | | |

| |How long would it take for \$5000 invested at 5% p.a. |D |

| |compound interest with yearly rests to double in value? | |

| |5 years | |

| |7 years | |

| |10 years | |

| |14 years | |

| |20 years | |

| | | |

| |An interest rate of 4.5% p.a. compounding monthly is |D |

| |equivalent to an effective interest rate of: | |

| |4.50% p.a. | |

| |4.55% p.a. | |

| |4.57% p.a. | |

| |4.59% p.a. | |

| |4.60% p.a. | |

| | | |

| |Which of the following compounding rates is equivalent to |B |

| |an effective interest rate of 2.75% p.a.? | |

| |2.7% p.a. compounding | |

| |six-monthly | |

| |2.75% p.a. compounding yearly | |

| |2.6% p.a. compounding quarterly | |

| |2.6% p.a. compounding monthly | |

| |2.6% p.a. compounding daily | |

| | | |

| |Two banks pay simple interest on |B |

| |short-term deposits. Bank A pays 5% p.a. over 3 years, and | |

| |Bank B pays 5.5% p.a. for 2[pic] years. The difference | |

| |between the two banks’ final payout figure, if \$10 000 was | |

| |invested in each account is: | |

| |\$0 | |

| |\$125 | |

| |\$250 | |

| |\$1375 | |

| |\$1500 | |

| | | |

| |Paul wishes to invest \$10 000 for a period of 5 years. |B |

| |Which of the following investments would be best for him? | |

| |6.7% p.a. simple interest | |

| |6.75% p.a. compound interest with yearly rests | |

| |6.5% p.a. compound interest with quarterly rests | |

| |6.25% p.a. compound interest with monthly rests | |

| |6% compound interest with daily rests. | |

| | | |

| |An investment of \$6000 was placed for 3 years at 4.25% p.a.|B |

| |compounded annually. How much more would be collected if | |

| |the investment was compounded quarterly? | |

| |No more | |

| |\$13.36 | |

| |\$32.97 | |

| |\$46.33 | |

| |\$52.29 | |

| | | |

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