Browse Accounting Lessons Here Accounting Terms & Definitions Accounting for Merchandising Activities Debits and Credits (Double Entry Accounting) Business Valuation Formulas Time Value of Money & Present/Future Values Complex Debt & Equity Instruments Common Stock & Shareholder's Equity Accounting & Finance Ratios Valuing Common Stock Corporate Income Taxes Lower of Cost or Market (LCM) & Inventory Valuation Chart of Accounts & Bookkeeping Bonds Payable & Long Term Liabilities Capital Assets GAAP, Accrual & Cash Accounting, Information Commodity, Internal Controls & Materiality What category of browser are you on this website? Accounting student (homework help) Finance professor (university research) Accounting manager (at work) Other Explore Careers in Accounting and Finance Visit our section on Careers in Accounting & Finance to explore vast opportunities in this industry.

Chapter 4.5® - Examples of Interest Rate Calculations & Practice Questions #1 - #7

1) Question

A person opens a bank account with a deposit of \$150. At the end of 3 years, there is \$179.34 in the account. What nominal interest rate compounded quarterly was earned on the investment?

 N = 3 I/Y = ? PV = \$150 PMT = \$0 FV = \$179.34 2ND I/Y P/Y = 1 C/Y = 4 CPT & I/Y = 6.14%

2) Question

A deposit of \$1500 earned \$672.45 interest over 7 and ½ years. What nominal interest rate compounded semi-annually was paid on the deposit?

 N = 7.5 I/Y = ? PV = -\$1,500 PMT = \$0 FV = \$2,172.45 2ND I/Y P/Y = 1 C/Y = 2 CPT & I/Y = 5%

3. Question

A principal of \$7100 has maturity value of \$13,966.70 in 10 years. If the interest rate is compounded annually, what is the nominal rate?

 N = 10 I/Y = ? PV = -\$7,100 PMT = \$0 FV = \$13,966.70 2ND I/Y P/Y = 1 C/Y = 1 CPT & I/Y = 6.999% (7%)

4. Question

A present value of \$1301.69 has a future value of \$2569.26 in 7 years and 7 months. What is the nominal rate compounded monthly?
Note: 7 years and 7 months = (7 x 12 months) + 7 months = 91 months

 N = 91 I/Y = ? PV = -\$1,301.69 PMT = \$0 FV = \$2,569.26 2ND I/Y P/Y = 12 C/Y = 12 CPT & I/Y = 9%

5. Question

At what nominal rate compounded quarterly will money double in 7 and ½ years?

 N = 7.5 I/Y = ? PV = -\$100 PMT = \$0 FV = \$200 2ND I/Y P/Y = 1 C/Y = 4 CPT & I/Y = 9.35%

6. Question

At what nominal rate compounded monthly will money double in 6 years?

 N = 6 I/Y = ? PV = -\$100 PMT = \$0 FV = \$200 2ND I/Y P/Y = 1 C/Y = 12 CPT & I/Y = 11.61%

7. Question

At what nominal rate compounded semi-annually will money triple in 9 and ½ years?

 N = 9.5 I/Y = ? PV = -\$100 PMT = \$0 FV = \$300 2ND I/Y P/Y = 1 C/Y = 2 CPT & I/Y = 11.91%