Exam 7: Applications of Simple Interest

An investment promises two payments of $1,000, on dates 60 and 90 days from today. What price will an investor pay today if her required return is 3%?

Sam has a bank account that pays interest calculated on the daily closing balance and paid monthly as follows: $0 to $5,000, 0.2%, $5,000 to $10,000, 0.25%, and over $10,000, 0.30%. Sam had $17,000 in his account on April 1. He withdrew $5,000 on April 15, withdrew another $5,000 on April 20, and deposited $2,000 on April 25. Calculate the interest that he will be paid for the month of April.

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?

For amounts between $10,000 and $24,999, a credit union pays a rate of 1.25% on term deposits with maturities in the 91 to 120-day range. However, early redemption will result in a rate of 0.55% 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?

Calculate the maturity value of a 300-day, $6,000 term deposit earning 5.15%.

Marcie has a $20,000 personal line of credit with an interest rate of prime + 3%. On the last day of each month, a payment equal to the greater of $500 or 4% of the current balance (including the current month's accrued interest) is deducted from her chequing account. On December 6, she withdrew $5,000. On January 15, she withdrew $12,000. The prime rate during this time was 3%. Prepare a loan repayment schedule up to and including February 28.

An Investment Savings account offered by a trust company pays a rate of 1.00% on the first $1,000 of daily closing balance, 1.75% on the portion of the balance between $1,000 and $3,000, and 2.25% on any balance in excess of $3,000. What interest will be paid for the month of January if the opening balance was $3678, $2800 was withdrawn on the 14^th of the month, and $950 was deposited on the 25^th of the month?

On January 12, Alex has student loans totalling $14,000. Alex agreed to a $200 per month repayment schedule at which time the annual interest rate was 5.5%. Determine the balance of the loan at the end of January.

What do you need to know to be able to calculate the fair market value of an investment that will deliver two future payments?

The payee on a 3-month $2,700 note earning interest at 4% wishes to sell the note to raise some cash. What price should she be prepared to accept for the note (dated May 19) on June 5 in order to yield the purchaser a 7% rate of return?

A contract requires payments of $2,000 and $3,000, 90 days and 120 days, respectively, from today. What is the value of the contract today if the payments are discounted to yield a rate of return of 12%?

A contract requires payments of $750 in 100, and 200 days. What is the value of the contract today if the payments are discounted to yield 7.5%?

Sam borrowed $10,000 at prime + 2% on March 29. He agreed to payments of $2,000 on the first day of each month beginning May 1. The prime rate was 4% when Sam took out the loan. Construct a full repayment schedule showing details of the allocation of each payment to interest and principal. What is the final payment?

On July 1, David borrowed $9,500 from his revolving line of credit. At the time the annual interest rate was 3.80%. On September 15, the annual interest rate was lowered to 3.60%. Determine the interest paid from July 1^st to December 31^st. Round to nearest dollar.

Calculate missing value for the promissory note:

Calculate the simple rate of return on a $1,000,000 181-day Treasury Bill that was issued for $970,639.

A 100-day $750 note with interest at 12.5% was written on July 15. The maker approaches the payee on August 10 to propose an early settlement. What amount should the payee be willing to accept on August 10 if short-term investments can earn 8.25%?

What interest rate was used to discount 270-day, $750,000 commercial paper when it was issued for $710,000?

Sixty-day commercial paper with face value $100,000 was issued by a company for $98,890.25. What rate of return will be realized if the investment is held until maturity?

A money market mutual fund purchased $1 million face value of Honda Canada Finance Inc. 90-day commercial paper 28 days after its issue. What price was paid if the paper was discounted at 2.10%?