Exam 7: Applications of Simple Interest

On April 7, Madeline had $10,500 in student loans outstanding. She agreed to $75 per month payments to repay these loans. From April 7 to May 5, the interest rates were 3.25%, but increased to 4.5% thereafter. Calculate the amount of interest paid for the month of May.

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?

Suppose that the current rates on 60 and 120-day GICs are 1.50% and 1.75%, 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?

Certificate A pays $1,000 in 4 months and another $1,000 in 8 months. Certificate B pays $1,000 in 5 months and another $1,000 in 9 months. If the current rate of return required on this type of investment certificate is 5.75%, determine the current value of each of the certificates. Give an explanation for the lower value of

For principal amounts of $5,000 to $49,999, a bank pays an interest rate of 0.95% on 180- to 269-day non-redeemable GICs, and 1.00% 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?

Keesha borrowed $7000 from her credit union on a demand loan on July 20 to purchase a motorcycle. The terms of the loan require fixed monthly payments of $1400 on the first day of each month, beginning September 1. The floating rate on the loan started at 8.75%, but rose to 9.25% on August 19, and to 9.5% effective November 2. Prepare a loan repayment schedule presenting the amount of each payment and the allocation of each payment to interest and principal.

An investment will pay $3,000 six months from now. What purchase price will provide a rate of return of 12%?

A 90-day non-interest-bearing note for $3,300 is dated August 1. What would be a fair selling price of the note on September 1 if money can earn 7.75%?

On January 20, Derek signed a contract to pay Violet $1,800 plus interest on August 15 and $2,200 plus interest on September 12. Both payments carried a 6% interest annually. Violet then sold both contracts to Stephanie on May 10 at a rate of 3.5% annually. Determine how much she received Round to the nearest $100.

Jake purchased a $100,000 182-day T-bill discounted to yield 5.5%. When he sold it 30 days later, yields had dropped to 5.0%. How much did Jake earn? (Taken from CIFP course materials.)

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 31. She chose the floating interest rate option and began monthly payments of $120 on November 30. The prime rate of interest was 3.5% on May 1, 3.25% effective July 9, and 4% effective December 13. Prepare a repayment schedule presenting details of the first three payments.

Sam has a $10,000 personal line of credit. The interest rate is prime + 2%. On the last day of each month, a payment equal to the greater of $200 or 4% of the current balance (including the current month's accrued interest) is deducted from his chequing account. On July 2, he withdrew $4,000 and another $3,000 on July 15. The prime rate during July was 3%. Prepare a loan repayment schedule for the month of July.

Paul has $20,000 to invest for 6 months. For this amount, his bank pays 1.3% on a 90-day GIC and 1.5% on a 180-day GIC. If the interest rate on a 90-day GIC is the same 3 months from now, how much more interest will Paul earn by purchasing the 180-day GIC than by buying a 90-day GIC and then reinvesting its maturity value in a second 90-day GIC?

The purchaser of a 168-day T-bill with a face value of $100,000 paid $98,929.92 for it. After 50 days, interest rates had increased and she sold the T-bill at 2.85%. What price did she receive for the T-bill?

An $8,000 demand loan at a fixed rate of 10.5% was advanced on May 10. A payment of $2,000 was made on July 15 and a final payment was made on Sept. 5. What was the size of the final payment?

On February 22, Jonathan had $20,000 of student loans. He agreed to a payment plan of $225 per month at an annual rate of 8.40%. Determine how much of the $225 will go towards the principal at the end of March.

Calculate missing value for the promissory note:

Calculate missing value for the promissory note:

For investments over $5,000, a bank quotes interest rates of 2.75% on 90-day GIC's, and 3.25% on 180-day GIC's. How much more interest will an investor earn by placing $8,000 in the 180-day GIC, rather than purchasing two consecutive 90-day GIC's?

An assignable loan contract executed 3 months ago requires two payments of $3,200 plus interest at 9% from the date of the contract, to be paid 4 and 8 months after the contract date. The payee is offering to sell the contract to a finance company in order to raise urgently needed cash. If the finance company requires a 16% rate of return, what price will it be prepared to pay today for the contract?