Site MapHelpFeedbackInternet Exercises
Internet Exercises
(See related pages)



1

Using the Bank of Canada inflation calculator, www.bankofcanada.ca/en/inflation_calc.htm, answer the following questions:
  1. What annual salary in 2004 was equivalent to $5,000 a year in 1940?
  2. Find the average annual inflation rate from 1914 to the current year.Now access the investment calculator by either clicking the button at the bottom of the pageor going to www.bankofcanada.ca/en/rates/investment.htm and answer these questions:
  3. With the calculator, determine the future value of a five-year investment. Use theaverage inflation from part (b) and look up the current five-year GIC rate at/www.bankofcanada.ca/en/interest-look.htm. Verify the calculations made by thecalculator. Be sure that you can replicate them all.
  4. Explain the second part of the calculation. Why is it important that the future valueentered be the amount of money you want to have in today's dollars (after the effects ofinflation have been calculated.)? Hint: What interest rate is used by the calculator?
2

RESP Calculator. The Canadian government is encouraging saving for post-secondaryeducation through registered education savings plans (RESPs) and the Canada EducationSavings Grant. Under current rules, a maximum of $4,000 may be saved each year, witha total lifetime maximum of $42,000. The Canada Education Savings Grant, paid annuallyby the federal government, is 20 percent of the contribution to a maximum of $400 peryear, to a maximum of $7,200. Although the contributions are not tax-deductible, theygrow tax-free, and then are taxed at the student's, presumably lower, tax rate when he orshe attends university or college.Go to www.mackenziefinancial.com/en/pub/tools/calculators/index.shtml and clickon "RESP calculator." Look at the impact of different interest rates and inflation assumptionson required savings. Create a hypothetical family with a one-year-old child. Preparea report for the parents outlining how much they should be saving to cover the cost of thechild's education. In your report, show them the impact on the needed annual savings ofwaiting two years before starting the RESP, rather than starting immediately. Be sure toclearly lay out your assumptions, including different inflation and interest rate scenarios.
3

Many banks provide loan and mortgage calculators.
  1. For example, go to the HSBC Bank of Canada Web site at www.hsbc.ca, and select"Calculators." A list of different calculators will appear. Select "Mortgage and CreditCalculators" and then "Loan Payments Calculator." Check that your answer to problem20 is correct.
  2. At the same Web site, select the "Mortgage and Credit Calculators," then select"Mortgage Payments Calculator." For a $200,000 mortgage, at annual interest of6 percent and 25-year amortization, compare the payments if you pay monthly, semimonthly,bi-weekly, or weekly. Can you figure out how the numbers are calculated?Do your own calculations.
  3. Go to www.tdcanadatrust.com and find another mortgage calculator for the samemortgage as you used in (b); get the bi-weekly payments. Compare them to HSBC's. Arethey the same? What does that tell you about the importance of assumptions in the timevalue of money calculations and the need to be careful using Internet calculators?
  4. U.S. mortgage rates are quoted as the APR of the monthly rate. If the mortgage rateis 6 percent, the appropriate monthly rate is 6/12 or 0.5 percent. Go to www.smartmoney.com, click on "Personal Finance" and go to "Real Estate." Use the mortgagecalculator to figure out the U.S. monthly mortgage payment for the mortgage inpart(b). Verify that you can calculate the monthly payment yourself.





To learn more about the book this website supports, please visit its Information Center.
(c)2006 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.


Fund of Corporate FinanceOnline Learning Center

Home > Chapter 4 > Internet Exercises