Deck 11: Simple Interest and Simple Discount

Question 1

When a business receives a promissory note as payment for goods or services and in turn sells the note to a bank it is called:

A) proceed advance
B) discounting
C) maturity value
D) fraud

Answer 1

B

Question 2

The number of days, months, or years for which money is borrowed is known as:

A) rate
B) time
C) principal
D) discount

Answer 2

time

Question 3

The formula to find principal is "principal divided by (rate times time)."

Answer 3

False

Question 4

With exact time, in a non-leap year, the duration of a loan dated January 23 and due to be paid April 12 is 80 days.

Question 5

The amount of money borrowed is called:

A) discount amount
B) proceeds
C) principal
D) maturity value

Question 6

Using ordinary time, a loan that starts on May 15 and is due to be paid August 15 would have a total duration of 92 days.

Question 7

When making a partial payment before the maturity date, the U.S. Rule states:

A) any partial loan payment is applied equally to principal and interest
B) any partial loan payment first reduces the adjusted principal
C) any partial loan payment first reduces the principal
D) any partial loan payment first covers any interest that has accumulated

Question 8

When determining ordinary interest, dividing by 360 or 365 provides the fractional daily interest rate.

Question 9

The length of time for which money is borrowed is called the term of a promissory note.

Question 10

The lowest rate of interest charged by banks for short-term loans to their most creditworthy customers is known as the:

A) all of these are appropriate references
B) reference rate
C) base lending rate
D) prime interest rate

Question 11

Simple interest is often used when a loan is repaid in a lump sum.

Question 12

When calculating ordinary interest, the denominator of the time fraction will be:

A) exact days per month
B) 365
C) 30 days per month
D) 360

Question 13

If a business receives a promissory note as payment for the sale of goods and in turn sells the note to a bank, it is called discounting a note.

Question 14

February 11 is the due date of a 100-day (exact time) loan dated November 3.

Question 15

Using the ordinary interest exact time method, a year is assumed to have 360 days.

Question 16

On a promissory note, the person borrowing the money is called the:

A) lender
B) maker
C) principal
D) payee

Question 17

__________is the percent of interest charged on a loan.

A) Time
B) Rate
C) Principal
D) Ordinary

Question 18

The advantage when using ordinary interest belongs to the:

A) investor
B) lender
C) both borrower and investor
D) borrower

Question 19

In a promissory note, the person borrowing the money is called the maker.

Question 20

If you use ordinary time, February is assumed to have 30 days, except in a leap year.

Question 21

The amount of money borrowed or invested is called the maturity value.

Question 22

"Interest divided by (principal times rate)" is the formula to find time.

Question 23

Ordinary interest using the exact time method is sometimes called the Banker's Rule.

Question 24

Gordon borrows $17,500.00 for 120 days on March 17. The day the loan is due to be paid, using exact time, is:

A) July 15
B) July 4
C) July 16
D) July 13

Question 25

The amount the maker of a discounted note receives is called the maturity value.

Question 26

The total amount of money due at the end of a loan period is referred to as the:

A) compound interest
B) simple interest
C) principal
D) maturity value

Question 27

When you use exact time, the duration of a loan that is dated June 8 and is due November 23 is 166 days.

Question 28

If you borrow money from a bank and the bank collects its fee at the time the loan is made, the fee is called a:

A) bank discount
B) maturity value
C) rate
D) term

Question 29

The term "ordinary interest" means a loan is for less than one year.

Question 30

If a note is dated July 15, discounted on September 29, and is due on November 12, the discount period is________ days.

A) 120
B) 44
C) 76
D) 74

Question 31

Exact interest using exact time requires the following formula:

A) exact days divided by 365
B) 30 divided by 365
C) exact days divided by 360
D) 30 divided by 360

Question 32

When calculating ordinary interest, the denominator of the time fraction is 360 days.

Question 33

The number of days a bank holds a discounted note is called the:

A) term
B) discount period
C) time
D) none of these

Question 34

In a non-interest bearing note, the maturity value is the same as the:

A) proceeds
B) principal plus interest
C) principal
D) discount

Question 35

Maturity value is equal to principal minus interest.

Question 36

When solving a simple interest problem, the rate should be written as a decimal number.

Question 37

Rate is the number of days, months, or years that money is borrowed.

Question 38

After agreeing to be the payee for a promissory note as payment for the sale of goods, a business:

A) may sell the note to a third party in exchange for cash
B) may discount the note to a third party
C) all apply in the case of a third-party discount note
D) receives the maturity value of the note if sold to another party, minus the third-party discount

Question 39

Simple interest applies when a loan is repaid:

A) for a credit card debt
B) as an installment
C) after more than one interest period
D) in a lump sum

Question 40

Adjusted balance due at maturity refers to:

A) the final interest payment due at maturity
B) the formula based on the U.S. Rule
C) the remaining principal after a partial payment has been properly credited
D) the remaining balance due at maturity after one or more partial payments have been made

Question 41

The maker of a promissory note is the borrower of the money.

Question 42

In a non-interest-bearing note, the maturity value of the note is the same dollar amount as the face value or principal.

Question 43

With ordinary time, a loan dated June 12 and due in 150 days should be paid on:

A) October 12
B) September 10
C) September 12
D) November 12

Question 44

If you count the specific number of days in a month, it is called _________time.

A) approximate
B) variable
C) exact
D) ordinary

Question 45

Time is considered ordinary when each month is assumed to have 30 days.

Question 46

When a business sells a note to a bank, the discount is calculated on the maturity value.

Question 47

A promissory note is a legal document whereby the signer promises to repay a loan.

Question 48

The total amount of money due at the end of a loan period is called the maturity value.

Question 49

Find the interest paid on a loan of $3946 for 5 months at a simple interest rate of 12% per year.

A) $236.76
B) $157.84
C) $198.96
D) $197.30

Question 50

The method used to calculate interest that is sometimes known as the Banker's Rule is:

A) ordinary interest using exact time
B) exact interest using exact time
C) ordinary interest using ordinary time
D) exact interest using ordinary time

Question 51

In a simple discounted note, the face value and the maturity value are the same amount.

Question 52

A loan is dated June 9 and is due November 22.Using exact time, the total number of days is:

A) 165
B) 166
C) 167
D) 164

Question 53

The price paid for the use of money is called interest.

Question 54

The simple interest formula is PI = RT.

Question 55

Find the ordinary interest on a loan of $850 at 11% annually made on February 10 and due May 31.

A) $28.57
B) $878.57
C) $93.50
D) $28.31

Question 56

The simple interest formula is:

A) P = IRT
B) R = PIT
C) I = PRT
D) T = PIR

Question 57

The formula to find the rate is interest divided by (principal times time).

Question 58

The maturity value of a loan is:

A) face value plus proceeds
B) principal plus interest
C) proceeds minus interest
D) principal minus interest

Question 59

If you assume each month has 30 days when calculating interest, time is considered:

A) ordinary
B) variable
C) approximate
D) exact

Question 60

If you borrow money from a bank and sign a promissory note, the bank is considered to be the payee.

Question 61

Find the exact interest on a loan of $47,000 at 9% annually made on February 21 and due June 30.

A) $1494.99
B) $1529.75
C) $1515.75
D) $1551.00

Question 62

Find the interest paid on a loan of $2000 for 1 year at a simple interest rate of 7% per year.

A) $14.00
B) $2140.00
C) $160.00
D) $140.00

Question 63

Tech Support Associates accepts a $5480, 8%, 210-day note for service equipment. The note is dated Sep 5. On Oct 21 the firm discounts the note at a bank, at a 10% discount rate. Find the proceeds.

A) $5420.97
B) $5472.85
C) $5474.44
D) $5526.70

Question 64

Find the ordinary interest on a loan of $350 at 12% annually made on July 9 and due October 31.

A) $13.30
B) $13.18
C) $42.00
D) $363.30

Question 65

Find the exact interest on a loan of $1100 at 8% annually for 155 days.

A) $3.79
B) $37.37
C) $37.89
D) $3.74

Question 66

Find the maturity value on a $7480 face-value note for 226 days if the discount rate is 12%.

A) $8043.49
B) $8051.43
C) $6916.51
D) $7535.58

Question 67

Find the maturity value on a $4765 face-value note for 273 days if the discount rate is 11%.

A) $5155.60
B) $5158.47
C) $5168.08
D) $5162.48

Question 68

Find the interest paid on a loan of $69,750 at 9% annual simple interest for 2.7 years.

A) $8920.66
B) $23,226.75
C) $16,321.50
D) $16,949.25

Question 69

Twin City Freezer accepts a note with face value of $5150 on June 4. The note is for 270 days at 10% interest. The note is discounted on July 23 at 12%. Find the proceeds.

A) $5128.41
B) $5063.48
C) $5196.39
D) $5126.57

Question 70

Find the exact time of a loan made on April 7 and due on February 9.

A) 309 days
B) 260 days
C) 307 days
D) 308 days

Question 71

Find the exact time of a loan made on July 6 and due on January 26.

A) 202 days
B) 185 days
C) 197 days
D) 204 days

Question 72

Find the exact interest on a loan of $93,000 at 12% annually for 137 days.

A) $4280.55
B) $4340.00
C) $4188.82
D) $4247.00

Question 73

How much interest will have to be paid on a loan of $50,967 for 23 months at a simple interest rate of 10.6% per year?

A) $10,354.80
B) $10,441.81
C) $9904.59
D) $10,805.00

Question 74

Dr. Bell wants to borrow $4100 for home improvements. He doesn't want to pay more than $215.25 in interest. Find the longest time for which the money may be borrowed if the interest rate is 7% per year. Round to the nearest month.

A) 7 months
B) 12 months
C) 8 months
D) 9 months

Question 75

Find the adjusted balance due at maturity for a 180 day note of $38,400 at 11.8% ordinary interest if a partial payment of $20,000 is made on the 100th day of the loan.

A) $19,658.67
B) $1258.67
C) $20,174.16
D) $515.49

Question 76

A loan is made on August 15 and has a due date of April 30 during a non-leap year. Find the exact time of the loan.

A) 257 days
B) 258 days
C) 158 days
D) 289 days

Question 77

Find the ordinary interest on a loan of $2780 at 7% annually for 316 days.

A) $2950.82
B) $170.28
C) $194.60
D) $170.82

Question 78

Find the maturity value of a loan of $6787 after 4 months. The loan carries a simple interest rate of 14% per year.

A) $7182.91
B) $7106.39
C) $7024.55
D) $7103.73

Question 79

You need to borrow $1500 to cover your school expenses for 10 months. After calling several places, you can choose between a money store charging 15% simple interest per year or your family who will charge you 10% per year. How much will you save by borrowing from your family?

A) $62.50
B) $150.00
C) $312.50
D) $750.00

Question 80

On June 1, Donaldson's Trucking accepts a $3000 note in settlement of a bill. The note is for 180 days at 10% interest. Donaldson sells the note at a 11% discount rate on July 22. Find the proceeds.

A) $3037.12
B) $3024.88
C) $2985.01
D) $3025.84