Compounding Interest
1. Suppose you invest $1,000 on January 31, 2005, earning 10% compounded annually. How
much will you have on January 31, 2015?
2. Suppose you invest $1,000 on January 31, 2005, earning 10% compounded semi-annually.
How much will you have on January 31, 2015?
3. At 10% compounded quarterly, what will $1,000 grow to in 10 years?
4. At 10% compounded continuously, what will $1,000 grow to in 10 years?
5. At 12% compounded annually, what will $1,000 grow to in 10 years?
6. At 12% compounded semi-annually, what will $1,000 grow to in 10 years?
7. At 12% compounded quarterly, what will $1,000 grow to in 10 years?
8. At 12% compounded monthly, what will $1,000 grow to in 10 years?
10. At 9% compounded annually, what will $1,000 grow to in 10 years?
11. At 9% compounded semi-annually, what will $1,000 grow to in 10 years?
14. What is the effective rate that is equivalent to 10% compounded semi-annually?
15. What is the effective rate that is equivalent to 10% compounded quarterly?
Rule of 72
1. Doug invested $2,500 into a Certificate of Deposit earning 6.5% interest. How long will it take to double
Doug’s investment?
2. The average Stock Market return since 1926 has been 11%. According to the Rule of 72, how often will
an individual’s investment double in that time?
3. Jessica has a balance of $2,200 on her credit card with an 18% interest rate. Her credit card company
doesn’t require a minimum payment on the balance (unheard of) and does not assess any late charges
(also unheard of). If Jessica chooses not to make any payments on her outstanding balance, how long
will it take for her balance to double?
4. Jacob has $5,000 that he has saved from doing odd jobs around the neighborhood. When he graduates
from college in four years, he would like to have $10,000 to use as a down payment on a new car. If
Jacob is going to realize his dream, what interest rate will he have to invest his money at?
5. Rhonda is 22 years old and would like to invest $2,000 into a U.S. Treasury Note earning 7.5% interest.
How many times will Rhonda’s investment double before she draws it out at age 70?
Reading a Bond ticker:
** REMEMBER **
To find the correct dollar value from a ticker, move the DECIMAL one (1) place to the RIGHT!
1. Suppose that you own a $1,000 AT&T corporate bond that pays 7.5% per year. This mean that each
year you will receive $75 in interest ($1,000 x 7.5% = $75). Assume that the current market value of the
AT&T bond is $960. What is the current yield (interest %) of your bond?
Amount of Interest
Current Market Val.
=
$75
$960
=
7.8%
2. You receive $120 in interest each year on your $2,000 corporate bond. What is the current yield
(interest %) of your bond?
Compute the One-Year Yield
Remember
Interest amount
Market Price
=
Current Yield
1. $1,000 face value bond, 7% interest, sold at face value.
2.
3.
4.
5.
6.
7.
a. Interest ______________
b. Yield _________________
$5,000 face value bond, 5.25% interest, sold at face value.
a. Interest ______________
b. Yield _________________
$3,000 face value bond, 8% interest, sold at face value.
a. Interest ______________
b. Yield _________________
$6,000 face value bond, 2% interest, sold at face value.
a. Interest ______________
b. Yield _________________
$9,000 face value bond, 5% interest, sold at face value.
a. Interest ______________
b. Yield _________________
$1,000 face value bond, 17% interest, sold at face value.
a. Interest ______________
b. Yield _________________
$4,500 face value bond, 3% interest, sold at face value.
a. Interest ______________
b. Yield _________________
Reading a Bond TICKER:
1
2
3
4
5
Bonds
Cur Yld
Vol
Close
Net Change
10.7
144
98 1/4
+ 3/8
K Mart 6.2s97
cv
50
Disney zr05
...
414
Chiquita 10 1/2 04
91
45 3/4
+ 1/4
+ 3/4
1. How many transactions of K Mart bonds were made? __________________
2. What year are each of these bonds due?
 Chiquita __________________
 Disney __________________
3. What is the stated coupon interest paid to the bondholder for each of these bonds?
 Chiquita ______________________________________________
 K Mart _______________________________________________
 Disney _______________________________________________
4. What was the closing price for these bonds on the previous day?
 K Mart ______________________________________________
 Disney _______________________________________________
Calculating Return on Mutual Fund
Return on
=
Mutual Fund
(Number of Shares x NAV) + Dividends
Cost of Initial Investment
- 1 x 100
Solve the following problems using the above formula for the one-year on a mutual fund.

100 share, NAV = $31.20, dividends of $250, initial investment of $2,900

75 share, NAV = $8.40, dividends of $102, initial investment of $590

100 share, NAV = $31.20, dividends of $250, initial investment of $2,900
Reading a Mutual Fund Ticker:
1
2
3
4
FIDELITY INVEST
NAV
Net Chg
YTD % Ret
MAGLN
83.35
-0.21
+5.8
OVRSE
32.15
+0.03
+4.2
SELVALU
11.07
-0.03
+1.5
STAR
16.67
-0.03
+5.1
VANGUARD GROUP
1. What is the net asset value of one share of the Vanguard STAR mutual fund?
_______________________________________________________________
2. If you bought 100 shares of Magellan at a price of $50.00/share, what is your gross profit as of
this date?
_______________________________________________________________
3. How much did Vanguard STAR gain or lose in NAV on this day as compared to the previous
day? _________________________________________________________________
4. Mary Mendez purchased 200 shares of Vanguard STAR at $12.30/share. How much did she
pay for the 200 shares? ________________
5. If the NAV per share is $15 in five years when Mary sells the shares, how much capital gain will
Mary have on the original 200 shares? ______________________________