Chapter 7 Practice Test

For questions 1 to 5, select the best answer. 6. After 1 year, Nadia’s investment is worth
$256.80. After 2 years, the amount has
1. Karl borrows $500 for 4 years at an annual
reached $290.40.
simple interest rate of 12% per year. What
is the amount that must be repaid? a) How much simple interest is Nadia’s
investment earning per year?
A $60
b) What is the principal?
B $240
c) What is the annual simple interest rate
C $560
per year?
D $740
7. Deanna invests $500 at 8% per year simple
2. Jasmine invests $400 at 8% annual interest, interest. She puts money in the bank on
compounded annually. How much interest July 1 and takes it out December 3. How
will be earned after 5 years? much money does she take out?
A $160
8. The time line for an annuity is shown.
B $187.73
C $560 Time (months)
D $587.73 Now 1 34 35 36
…
3. If an amount is invested at 6.5% per year,
400 400 400 400
compounded semi-annually, for 3 years, 400(1.005)1
determine the number of compounding 400(1.005)2
periods and the interest rate per

…
compounding period. 400(1.005)35
A n 5 3, i 5 0.065
a) What is the duration of this annuity?
B n 5 6, i 5 0.0325
How can you tell?
C n 5 1.5, i 5 0.13
b) Determine the annual rate of interest
D n 5 12, i 5 0.01625 and the number of compounding
4. If the annual interest rate is 3.9% and
periods per year.
the interest per compounding period is c) Determine the amount of this annuity.
0.975%, what is the compounding period? d) Determine the total interest earned.
A weekly
9. Leon has $3000 that he wants to invest for
B monthly 6 years. Which option should he choose,
C quarterly and why?
D semi-annual Option A: 5.2% annual interest,
compounded quarterly
5. An amount is deposited into an account that
Option B: 5% annual interest, compounded
earns 9% per year, compounded quarterly.
After 6 years, the amount in the account is monthly
$597.02. What is the present value?
A $350.00
B $355.98
C $404.24
D $421.36

466 MHR • Functions 11 • Chapter 7

Functions 11 CH07.indd 466 6/10/09 4:24:45 PM

 10. Colette takes out a 16. After 20 years of investing, Heather
loan for $2800 to decides to retire and use the amount of
buy a scooter. her annuity to finance her retirement
She plans for the next 20 years. Use the amount
to repay from question 15b) and the same interest
the loan conditions.
in 3 years. a) Draw a time line to represent Heather’s
The amount retirement annuity.
payable when
b) Determine the maximum monthly
the loan is
withdrawal that she can make.
due is $3420.51.
What rate of interest, c) Determine the total amount of interest
compounded annually, is Colette being earned over the 40 years spanning the
charged? two annuities.

11. You invest $1000 at 6% per year, 17. Niki needs $5200 for university tuition
compounded quarterly, for 3 years. What when she graduates from high school
interest rate, compounded monthly, will in 2 years. She plans to make deposits
give the same results? into an account that earns 6.5% per year,
compounded bi-weekly.
12. An account paying 7.25% annual interest, a) Draw a time line to represent this
compounded semi-annually, has a future annuity.
value of $1429 in 8 years.
b) How much should she deposit every
a) What is the present value of the 2 weeks?
account?
b) How much more interest will have been 18. Shira has invested $18 000 in an annuity
earned than if simple interest was paid? from which she plans to withdraw $650
per month for the next 4.5 years. If at the
13. To have $5000 at the end of 8 years, how end of this time period the balance of
much do you need to invest today, at the annuity is zero, what annual rate of
6% per annum, compounded interest, compounded monthly, did the
semi-annually? account earn?

14. Jerry deposited $300 into an account that 19. Instead of investing $3000 at the end of
earns 6.7% annual interest, compounded 5 years and $4000 at the end of 10 years,
daily. When he closed the account, the Steve wishes to make regular monthly
amount had grown to $348.56. How long payments that will amount to the same
was the money invested? total after 10 years. Determine the monthly
payment if interest is compounded
15. Heather deposits $200 per week for monthly at an annual rate of 4%.
20 years into an account that earns
2.6% annual interest, compounded weekly.
a) Draw a time line to represent this
annuity.
b) Determine the amount of the annuity.
c) How much interest will be earned?

Chapter 7 Practice Test • MHR 467

Functions 11 CH07.indd 467 6/10/09 4:24:46 PM