Deck 10: Simple Interest

Question 1

In calculating interest in the U.S. Rule from the last partial payment, the interest is subtracted from the adjusted balance.

Answer 1

False

Question 2

The amount a bank charges for the use of money is called interest.

Answer 2

True

Question 3

Interest is the cost of borrowing.

Answer 3

True

Question 4

The time of a loan could be expressed in months, years, or days.

Question 5

The exact interest method represents time as the exact number of days divided by 365.

Question 6

Interest = principal × rate.

Question 7

To convert time in days, it is necessary to multiply the time in years times 360 or 365.

Question 8

Rate is equal to interest divided by the principal times time.

Question 9

Simple interest loans are usually more than one year.

Question 10

July 10 to March 15 is 119 days.

Question 11

In the U.S. Rule, the first step is to calculate interest on the total life of the loan.

Question 12

The federal government likes to use ordinary interest.

Question 13

In the U.S. Rule, the partial payment first covers the interest and the remainder reduces the principal.

Question 14

Principal is equal to rate divided by interest times time.

Question 15

The interest is the amount of money borrowed.

Question 16

Ordinary interest is required by all banks.

Question 17

Ordinary interest results in a slightly higher rate of interest than exact interest.

Question 18

Ordinary interest is never used by banks.

Question 19

The U.S. Rule is seldom used in today's workplace.

Question 20

The U.S. Rule is a method that allows the borrower to receive proper interest credit when a debt is paid off in more than one payment before the maturity date.

Question 21

Interest of $1,632 with principal of $16,000 for 306 days (ordinary interest) results in a rate of:

A)10%
B)12%
C)12 1/2%
D)13%
E)None of these

Question 22

Simple interest usually represents a loan of:

A)One month or less
B)One year or less
C)Two years or less
D)Six months or less
E)None of these

Question 23

Jill Ley took out a loan for $60,000 to pay for her child's education. The loan would be repaid at the end of eight years in one payment with interest of 6%. The total amount Jill has to pay back at the end of the loan is:

A)$88,008
B)$80,800
C)$88,800
D)$28,800
E)None of these

Question 24

Federal Reserve banks as well as the federal government like to calculate simple interest based on:

A)Exact interest, ordinary interest
B)Using 30 days in each month
C)Using 31 days in each month
D)Exact interest
E)None of these

Question 25

The U.S. Rule:

A)Is used only by banks
B)Is never used by banks
C)Allows borrowers to receive interest credit
D)Is hardly used today
E)None of these

Question 26

The number of days between Aug. 9 and Jan. 3 is:

A)145
B)144
C)147
D)148
E)None of these

Question 27

Which of the following is not true of the U.S. Rule?

A)Calculate interest on principal from date of loan to date of first payment
B)Allows borrower to receive proper interest credits
C)Can use 360 days in its calculations
D)Can involve more than one payment before maturity date
E)None of these

Question 28

At maturity, using the U.S. Rule, the interest calculated from the last partial payment is:

A)Subtracted from adjusted balance
B)Added to beginning balance
C)Subtracted from beginning balance
D)Added to adjusted balance
E)None of these

Question 29

Interest on $5,255 at 12% for 30 days (use ordinary interest) is:

A)$52.55
B)$55.25
C)$5.26
D)$5.25
E)None of these

Question 30

A $40,000 loan at 4% dated June 10 is due to be paid on October 11. The amount of interest is (assume ordinary interest):

A)$503.00
B)$2,500.00
C)$546.67
D)$105.33
E)None of these

Question 31

Janet Home went to Citizen Bank. She borrowed $7,000 at a rate of 8%. The date of the loan was September 20. Janet hoped to repay the loan on January 20. Assuming the loan is based on ordinary interest, Janet will pay back how much interest on January 20?

A)$188.22
B)$187.18
C)$189.78
D)$187.17
E)None of these

Question 32

Joan Roe borrowed $85,000 at a rate of 11 3/4%. The date of the loan was July 8. Joan is to repay the loan on Sept. 14. Assuming the loan is based on exact interest, the interest Joan will pay on Sept. 14 is:

A)$86,860.68
B)$1,860.68
C)$1,886.53
D)$86,886.53
E)None of these

Question 33

Interest is equal to:

A)Principal × rate divided by time
B)Principal divided by rate × time
C)Principal × time
D)Principal × rate × time
E)None of these

Question 34

A note dated Dec. 13 and due July 5 runs for exactly:

A)11 days
B)161 days
C)204 days
D)347 days
E)None of these

Question 35

Matty Kaminsky owns a new Volvo. His June monthly interest is $400. The rate is 8 ½%. Matty's principal balance at the beginning of June is (use 360 days):

A)$65,740.58
B)$64,470.58
C)$65,704.58
D)$56,470.58
E)None of these

Question 36

Joe Flynn visits his local bank to see how long it will take for $1,200 to amount to $2,100 at a simple interest rate of 7%. The time is (round time in years to nearest tenth):

A)9.2 years
B)11.1 years
C)10.7 years
D)17.1 years
E)None of these

Question 37

The amount charged for the use of a bank's money is called:

A)Principal
B)Interest
C)Rate
D)Time
E)None of these

Question 38

A note dated August 18 and due on March 9 runs for exactly:

A)230 days
B)227 days
C)272 days
D)203 days
E)None of these

Question 39

Given interest of $11,900 at 6% for 50 days (ordinary interest), one can calculate the principal as:

A)$1,428,005.70
B)$4,128,005.70
C)$1,428,000.00
D)$1,420.70
E)None of these

Question 40

Joyce took out a loan for $21,900 at 12% on March 18, 2013, which will be due on January 9, 2014. Using ordinary interest, Joyce will pay back on Jan. 9 a total amount of:

A)$2,167.10
B)$24,068.10
C)$24,038.40
D)$2,138.40
E)None of these

Question 41

With interest of $1,832.00 and a principal of $16,000 for 206 days, using the ordinary interest method, the rate is:

A)20%
B)12%
C)2%
D)10%
E)None of these

Question 42

Sandra Gloy borrowed $5,000 on a 120-day 5% note. Sandra paid $500 toward the note on day 40. On day 90 she paid an additional $500. Using the U.S. Rule, her adjusted balance after the first payment is:

A)$4,527.87
B)$4,725.87
C)$4,725.70
D)$4,527.78
E)None of these

Question 43

The number of days between May 20 and November 22 is:

A)197
B)206
C)186
D)183
E)None of these

Question 44

Christina Hercher borrowed $50,000 on a 90-day 8% note. Christina paid $3,000 toward the note on day 40. On day 60 she paid an additional $4,000. Using the U.S. Rule, Christina's adjusted balance after the first payment is:

A)$1,008.89
B)$48,008.89
C)$47,444.44
D)$44,744.44
E)None of these

Question 45

On May 17, Jane took out a loan for $33,000 at 6% to open her law practice office. The loan will mature the following year on January 16. Using the ordinary interest method, what is the maturity value due on January 16?

A)$34,342
B)$34,320
C)$34,323.62
D)$34,254
E)None of these

Question 46

Janet took out a loan of $50,000 from Bank of America at 8% on March 19, 2012, which is due on July 8, 2012. Using exact interest, the amount of Janet's interest cost is:

A)$5,018.44
B)$2,561.44
C)$5,261.44
D)$5,216.44
E)None of these

Question 47

Jim Murphy borrowed $30,000 on a 120-day 14% note. Jim paid $5,000 toward the note on day 95. On day 105 he paid an additional $6,000. Using the U.S. Rule, Jim's adjusted balance after the first payment is:

A)$25,000
B)$28,891.67
C)$1,108.33
D)$26,108.33
E)None of these

Question 48

Sue Gastineau borrowed $17,000 from Regions Bank at a rate of 5.5% to open her lingerie shop. The date of the loan was March 5. Sue hoped to repay the loan on September 19. Assuming the loan is based on ordinary interest, Sue will pay back how much in interest expense?

A)$467.50
B)$541.25
C)$514.25
D)$506.46
E)None of these

Question 49

Banks and other financial institutions sometimes calculate simple interest based on:

A)Exact interest method
B)Using 30 days for each month
C)Using 366 days in the year
D)Bankers rule, ordinary interest
E)None of these