Exam 7: Applications of Simple Interest

Determine the legal due date for a three-month note dated October 6, 2003.

Seth had accumulated Canada Student Loans totalling $5200 by the time he graduated from Mount Royal College in May. He arranged with the Bank of Nova Scotia to select the floating-rate option (at prime plus 2½ %) and to begin monthly payments of $110 on December 31. Prepare a loan repayment schedule up to and including the February 28 payment. The prime rate was initially at 7.25%. It dropped by 0.25% effective January 31. Seth made an additional principal payment of $300 on February 14.

Calculate missing value for the promissory note:

McKenzie Wood Products negotiated a $200,000 revolving line of credit with the Bank of Montreal at prime plus 2%. On the 20^th of each month, interest is calculated (up to but not including the 20^th) and deducted from the company's chequing account. If the initial loan advance of $25,000 on July 3 was followed by a further advance of $30,000 on July 29, how much interest was charged on July 20 and August 20? The prime rate was at 8% on July 3 and fell to 7.75% on August 5.

Calculate missing value for the promissory note:

An agreement stipulates payments of $4500, $3000, and $5500 in 4, 8, and 12 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum rate of return of 10.5%?

On the June 12 interest payment date, the outstanding balance on Delta Nurseries' revolving loan was $65,000. The floating interest rate on the loan stood at 6.25% on June 12, but rose to 6.5% on July 3, and to 7% on July 29. If Delta made principal payments of $10,000 on June 30 and July 31, what were the interest charges to its bank account on July 12 and August 12? Present a repayment schedule supporting the calculations

Calculate the maturity value of a 120-day, $1000 face value note dated September 5, 2003, earning interest at 4.75%.

A conditional sale contract requires two payments 3 and 6 months after the date of the contract. Each payment consists of $1900 principal plus interest at 12.5% on $1900 from the date of the contract. One month into the contract, what price would a finance company pay for the contract if it requires an 18% rate of return on its purchases?

If the market-determined rate of return on an investment declines, what happens to the investment's fair market value? Explain. (Assume the expected cash flows from the investment do not change.)

Calculate missing value for the promissory note:

Calculate missing value for the promissory note:

Dr. Robillard obtained a $75,000 operating line of credit at prime plus 1%. Accrued interest up to but not including the last day of the month is deducted from his bank account on the last day of each month. On February 5 (of a leap year) he received the first draw of $15,000. He made a payment of $10,000 toward principal on March 15, but took another draw of $7000 on May 1. Prepare a loan repayment schedule showing the amount of interest charged to his bank account on the last days of February, March, April, and May. Assume that the prime rate remained at 7.5% through to the end of May.

A 4-month Guaranteed Investment Certificate with a face value of $55,000 will have a maturity value of $56,100. What simple annual interest rate is it carrying?

Ruxandra's Canada Student Loans totalled $7200 by the time she finished Conestoga College in April. The accrued interest at prime plus 2.5% for the grace period was converted to principal on October

Joan has savings of $12,000 on June 1. Since she may need some of the savings during the next 3 months, she is considering two options at her bank. (1) An Investment Builder savings account earns a 2.25% rate of interest. The interest is calculated on the daily closing balance and paid on the first day of the following month. (2) A 90- to 179-day cashable term deposit earns a rate of 2.8%, paid at maturity. If interest rates do not change and Joan does not withdraw any of the funds, how much more will she earn from the term deposit up to September 1? (Keep in mind that savings account interest paid on the first day of the month will itself subsequently earn interest during the subsequent month.)

What is the price of a $50,000, 182-day T-bill on its issue date if the market rate of return on this date was 6.875%?

An investment promises two payments of $1000, on dates 60 and 90 days from today. What price will an investor pay today: a) If her required return is 10%? b) If her required return is 11%? c) Give an explanation for the lower price at the higher required return.

Claude Scales, a commercial fisherman, bought a new navigation system for $10,000 from Coast Marine Electronics on March 20. He paid $2000 in cash and signed a conditional sales contract requiring a payment on July 1 of $3000 plus interest on the $3000 at a rate of 11%, and another payment on September 1 of $5000 plus interest at 11% from the date of the sale. The vendor immediately sold the contract to a finance company, which discounted the payments at its required return of 16%. What proceeds did Coast Marine receive from the sale of the contract?

A 7-month, $75,400 Guaranteed Investment Certificate pays simple interest of 6.85%. Calculate the maturity value.