Exam 7: Applications of Simple Interest

For principal amounts of $5000 to $49,999, a bank pays an interest rate of 2.95% on 180- to 269-day non-redeemable GICs, and 3.00% on 270- to 364-day non-redeemable GICs. Ranjit has $10,000 to invest for 364 days. Because he thinks interest rates will be higher six months from now, he is debating whether to choose a 182-day GIC now (and reinvest its maturity value in another 182-day GIC) or to choose a 364-day GIC today. What would the interest rate on 182-day GICs have to be on the reinvestment date for both alternatives to yield the same maturity value 364 days from now?

Determine the issue price of a 91-day, $100,000 Government of Alberta Treasury Bill that was issued at a discount rate of 5.75%.

Calculate missing value for the promissory note:

An Investment Savings account offered by a trust company pays a rate of 1.00% on the first $1000 of daily closing balance, 1.75% on the portion of the balance between $1000 and $3000, and 2.25% on any balance in excess of $3000. What interest will be paid for the month of January if the opening balance was $3678, $2800 was withdrawn on the 14^th of the month, and $950 was deposited on the 25^th of the month?

Calculate the maturity value of a $1000 face value, 5-month note dated December 31, 2011, and bearing interest at 9.5%.

An investment earning 16% simple interest has a maturity value of $9440.00 after eight months. What was the initial amount invested?

An Investment Savings account offered by a trust company pays a rate of 1.25% on the first $1000 of daily closing balance, 1.5% on the portion of the balance between $1000 and $3000, and 1.75% on any balance in excess of $3000. What interest will be paid for the month of April if the opening balance was $2439, $950 was deposited on April 10, and $500 was withdrawn on April 23?

An agreement stipulates payments of $4000, $2500, and $5000 in 3, 6, and 9 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 9.25%?

Calculate missing value for the promissory note:

For amounts between $10,000 and $24,999, a credit union pays a rate of 2.5% on term deposits with maturities in the 91 to 120-day range. However, early redemption will result in a rate of 1.75% being applied. How much more interest will a 91-day $20,000 term deposit earn if it is held until maturity than if it is redeemed after 80 days?

Follow the instructions in the NET @ssets box in Section 7.1 to find the "Royal Bank Rates" link to the Royal Bank's Web page for current interest rates. In this page's navigation bar, select "Redeemable GIC" or "Non-Redeemable GIC" to obtain current rates for these simple-interest investments. a) For each type of GIC, how much interest will you earn on $10,000 invested for 100 days? b) How much interest will you earn on the Redeemable GIC if you redeem it after: (i) 29 days? (ii) 31 days?

A 182-day, $250,000 Treasury Bill originally issued at 6.6% was sold at 5.9%, 82 days after it was issued. What was the selling price?

Giovando, Lindstrom & Co. obtained a $6000 demand loan at prime plus 1.5% on April 1 to purchase new office furniture. The company agreed to fixed monthly payments of $1000 on the first of each month, beginning May 1. Calculate the total interest charges over the life of the loan if the prime rate started at 6.75% on April 1, decreased to 6.5% effective June 7, and returned to 6.75% on August 27. Present a repayment schedule in support of your answer.

Hercules Sports obtained a $60,000 operating line of credit on March 26. Interest charges at the rate of prime plus 2.5% were deducted from its chequing account on the eighteenth of each month. Hercules took an initial draw of $30,000 on March 31, when the prime rate was 5.25%. Further advances of $10,000 and $15,000 were taken on April 28 and June 1. Payments of $5000 and $10,000 were applied against the principal on June 18 and July 3. The prime rate rose to 5.25% effective May 14. Present a repayment schedule showing details of transactions up to and including July 18.

Calculate missing value for the promissory note:

Calculate missing value for the promissory note:

If short-term interest rates have increased during the past week, will investors pay more this week (than last week) for T-bills of the same maturity and face value? Explain.

What is the simple interest rate of a 7-month GIC that grows from $30,000 to its maturity value of $31,500?

Suppose that the current rates on 60 and 120-day GICs are 5.50% and 5.75%, respectively. An investor is weighing the alternatives of purchasing a 120-day GIC versus purchasing a 60-day GIC and then reinvesting its maturity value in a second 60-day GIC. What would the interest rate on 60-day GICs have to be 60 days from now for the investor to end up in the same financial position with either alternative?

A six-month non-interest-bearing note issued on April 11, 2003, for $4000 was discounted at 6.25% on September 2, 2003. What were the proceeds of the note?