Exam 7: Applications of Simple Interest

An investor purchased a 182-day, $25,000 Province of Alberta Treasury bill on its date of issue for $24,610 and sold it 60 days later for $24,750. a) What rate of return was implied in the original price? b) What rate of return did the market require on the sale date? c) What rate of return did the original investor actually realize during the 60-day holding period?

An agreement stipulates payments of $4,000, $2,500, and $5,000 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 6.25%?

Monica finished her program at New Brunswick Community College on June 3 with Canada Student Loans totalling $6,800. She decided to capitalize the interest that accrued (at prime plus 2.5%) during the grace period. In addition to regular end-of-month payments of $200, she made an extra $500 lump payment on March 25 that was applied entirely to principal. The prime rate dropped from 5% to 4.75% effective September 22, and declined another 0.5% effective March 2. Calculate the balance owed on the floating rate option after the regular March 31 payment. The relevant February had 28 days.

Determine the legal due date for: a) A 5-month note dated September 29, 2014. b) A 150-day note issued September 29, 2014.

Is the price of a 98-day $100,000 T-bill higher or lower than the price of a 168-day $100,000 T-bill? Why?

Calculate and compare the issue date prices of $100,000 face value commercial paper investments with 30, 60, and 90-day maturities, all priced to yield 5.5%.

Calculate missing value for the promissory note:

On February 1, John signed a contract to pay Janet $4,500 plus interest on April 2 and $5,500 plus interest on July 31. Both payments carried a 6.5% interest annually. Janet then sold both contracts to Fred on May 1 at a rate of 4.5% annually. Determine how much she received.

A $25,000, 91-day Province of Newfoundland Treasury bill was originally purchased at a price that would yield the investor a 5.438% rate of return if the T-bill is held until maturity. Thirty-four days later, the investor sold the T-bill through his broker for $24,775. a) What price did the original investor pay for the T-bill? b) What rate of return will the second investor realize if she holds the T-bill until maturity? c) What rate of return did the first investor realize during his holding period?

On January 15, Mario signed a contract to pay Stephan $12,000 plus 9% interest on May 15 and $18,000 plus 10% interest on September 12. On August 15, Stephan then sold the first contract to Sally at a rate of 11% and the other contract to Anna for 12%. Determine the amount Stephan received on August 15.

A $100,000, 90-day commercial paper certificate issued by Wells Fargo Financial Canada was sold on its issue date for $99,250. What rate of return will it yield to the buyer?

Beth borrowed $5,000 on demand from Canada Trust on February 23 for a Registered Retirement Savings Plan (RRSP) contribution. Because she used the loan proceeds to purchase Canada Trust's mutual funds for her RRSP, she received a special interest rate of prime plus 0.5%. Beth was required to make fixed monthly payments of $1,000 on the 15^th of each month, beginning April 15. The prime rate was initially 4.75%, but it jumped to 5% effective June 15 and increased another 0.25% on July 31. (It was not a leap year.) Construct a repayment schedule showing the amount of each payment and the allocation of each payment to interest and principal.

Calculate missing value for the promissory note:

A 6-month note dated June 30 for $2,900 bears interest at 8.5%. Determine the proceeds of the note if it is discounted at 4.75% on September 1.

On October 15, Jerome had $9,000 of student loans. He agreed to a payment plan of $150 per month at an annual rate of 9.60%. Determine how much of the $150 will go towards the principal at the end of December.

What will be the maturity value of $10,000 placed in a 90-day term deposit paying an interest rate of 3.25%?

Ada had $12,500 in student loans. On Sept 3, she began repayments of $450 per month when interest rates were 9.2% annually. On October 8 the interest rates rose to 9.5%. By what amount will the principal be reduced given the $450 payment on October 31?

On March 17, Luke borrowed $4,500 from his revolving line of credit. The current annual interest rate at the time was 5.30%. On April 30, Luke repaid $1,500, and concurrently the annual interest rate decreased to 5.10%. On June 30, Luke repaid the total amount borrowed, along with interest. Determine the interest amount to be repaid.

What will be the maturity value of $25,000 placed in a 90-day term deposit paying an interest rate of 4.75%?

The local bank pays interest calculated on the daily closing balance and paid monthly as follows: $0 to $5,000, 0.167%, $5,000 to $25,000, 0.25%, and over $25,000, 0.33%. Mrs. Singh had $3500 in her account on March 1. She deposited $2475 on March 5, withdrew $500 on March 12, and deposited $600 on March 15. Calculate the interest that she will be paid for the month of March.