Deck 8: Simple Interest Applications

Question 1

Find the present value of a non-interest-bearing seven-month promissory note for $1800 dated August 27, 2012, on December 4, 2012, if money is then worth 8.375%.

Answer 1

Due date: March 30, 2013
Maturity value: $1800.00
Discount period: December 4, 2012 - March 30, 2013
P = = = $1753.33

Question 2

The maturity value of a five-month promissory note issued May 31, 2013, is $2134.00. What is the present value of the note on the date of issue if money is worth 6.3%?

Answer 2

Legal due date: November 3, 2013
Interest period: May 31, 2013 - November 3, 2013 is 156 days
P = = = $2078.05

Question 3

What is the face value of a three-month promissory note dated July 30, 2013, with interest at 6.5 percent if its maturity

Answer 3

Legal due date: November 2, 2013
Interest period: July 30- November 2 = 95 days
S = 1742.84; r = 0.065; t = P = = = = $1713.85

Question 4

Determine the maturity value of a 120-day note for $2260.00 dated May 9 and bearing interest at 5.66%.

Question 5

Find the maturity value of a six-month, $642 note dated November 1, 2013, earning interest at 7.5%.

Question 6

For the following promissory note, determine the amount of interest due at maturity.

Question 7

A 4-month, 7.26% percent promissory note dated June 10, 2013 has a maturity value of $6231.34. What is the face value of the note?

Question 8

Find the maturity value of a $1190, 7.275%, 120-day note dated February 5, 2013.

Question 9

A 60-day non-interest-bearing promissory note for $10 000 is dated June 1, 2013. Compute the present value of the note on June 14, 2013, if money is worth 5%.

Question 10

The maturity value of a 155-day 7.5% note dated March 14 is $1721.74. Compute the face value of the note.

Question 11

Compute the present value of a 150-day non-interest-bearing promissory note for $5000 dated June 15, if the note was sold on August 21 and money is worth 6.5%.

Question 12

Find the present value on June 1, 2014 of a non-interest-bearing note for $950 issued February 2, 2014, for 210 days if money is worth 8.31%.

Question 13

Find the maturity date and the maturity value of a $1415.00, 5.25%, 220-day note dated February 25, 2012.

Question 14

Find the present value and the amount of discount for a four-month non-interest-bearing note for $9 180 issued December 2, 2014, if money is worth 7.2% on February 28, 2015.

Question 15

A note for $665 dated March 22, 2014, with interest at 7.34% per annum, is issued for 128 days. Determine
a) the legal due date;
b) the interest period (in days);
c) the amount of interest;
d) the maturity value.

Question 16

A note for $800 dated June 4, 2010, with interest at 8.25% p.a., is issued for 10 days. Determine
a) the legal due date;
b) the interest period (in days);
c) the amount of interest;
d) the maturity value.

Question 17

For the following promissory note, determine the amount of interest due at maturity.

Question 18

Find the maturity value of a 60-day, 4% note for $3000 note dated February 25, 2011.

Question 19

Find the maturity value of a $473 note issued on October 4 at 8.5% for 190 days.

Question 20

Determine the present value on January 17, 2014 of a non-interest-bearing promissory six-month note for $17 000.00 dated October 15, 2013 if money is worth 4.15%.

Question 21

Find the present value of a seven-month note for $3940 dated April 1 with interest at 7.45% if money is worth 6%, on

Question 22

Government of Manitoba 364-day T-bills with a face value of $2 000 000 were purchased on April 17 for $1 945 970. The T-bills were sold on May 25 for $1 946 340.
a) What was the market yield rate on April 17?
b) What was the yield rate on May 25?
c) What was the rate of return realized?

Question 23

Meher purchased a $100 000.00, 182-day T-bill on April 4, 2012.
a) If the annual rate of return is 4.2%, calculate the purchase price.
b) Calculate the selling price of the bill if it is sold on June 20, 2012 to yield 3.19%.
c) Calculate the rate of interest realized.

Question 24

Tracey bought a 182-day Government of Canada treasury bill at the price to yield an annual rate of return of 4.68%.
a) What was the price paid by Tracey if the T-bill has a face value of $100 000?
b) Later the same day, Tracey sold this T-bill to a large corporation to yield 4.48%. What was Tracey's profit on this transaction?

Question 25

A six-month promissory note dated November 8, 2013 is made at 6% for $2900.00. What is the present value of the note thirty-eight days later if money is worth 7.2%?

Question 26

A 7-month note dated May 1, 2014 is made at 3.75% for $3705. What is the present value of the note on September 4, 2014, if money is worth 6.87%?

Question 27

An investment dealer bought a 182-day Government of Canada treasury bill at the price required to yield an annual rate of return of 3.38%
a) What was the price paid by the investment dealer if the T-bill has a face value of $1 000 000?
b) Later the same day, the investment dealer sold this T-bill to a large corporation to yield 3.25%. What was the investment dealer's profit on this transaction?

Question 28

Find the proceeds of a six-month note for $966 dated September 16, 2012, with interest at 5.45% if money is worth 5.75% on November 4, 2012.

Question 29

Linda borrowed $19 000.00 on August 17. She paid $4500.00 on November 11, $5500.00 on December 8, and the balance on February 21. The rate of interest on the loan was 8.5%. How much did Linda pay on February 20? Use the declining balance method.

Question 30

A government of Ontario 364-day T-bills with a face value of $50 000 were purchased on January 2 for $48 000.76. The T-bills were sold on September 28 for $48 999.99.
a) What was the market yield rate on January 2?
b) What was the yield rate on September 28?
c) What was the rate of return realized?

Question 31

Darren purchased $250 000 in 364-day T-bills 315 days before maturity to yield 2.86%. After holding it for 120 days, Darren sold the T-bill for a yield of 3.25%.
a) How much did Darren pay for the T-bills?
b) For how much did Darren sell the T-bills?
c) What rate of return (per annum) did Darren realize on the investment?

Question 32

An investor purchased $250 000 in 91-day T-bills on the issue date for $248 157.56. After holding the T-bills for 37 days, she sold them for a yield of 3.25%.
a) What was the original yield of the T-bills?
b) For how much did the investor sell the T-bills?
c) What rate of return (per annum) did the investor realize while holding this T-bill?

Question 33

On July 12, 2013 a 140-day note promissory note for $9 175 with interest at 5.75% was issued. Find the proceeds of the note on September 30, 2013 if money is worth 7%.

Question 34

What is the price of a 91-day, $50 000 Government of Canada treasury bill that yields 1.97% per annum?

Question 35

Sean purchased a 182-day, $10 000 T-bill on its issue date for $9754.25. What was the original yield of the T-bill?

Question 36

Bradley purchased a 91-day, $100 000 T-bill on its issue date for $99 237.96. What was the original yield of the T-bill?

Question 37

A $2850, five-month promissory note with interest at 6.15% is issued on June 1. Compute the proceeds of the note on August 13, when money is worth 7.5%.

Question 38

The East Lake Karate Club arranged short-term financing of $41 500.00 on July 27 with the Bank of Commerce and secured the loan with a demand note. The club repaid the loan by payments of $13 000.00 on September 25, $7500.00 on November 17, and the balance on December 20. Interest calculated on the daily balance and charged to the club's current account on the last day of each month, was at 8.5% per annum on July 27. The rate was changed to 8.75% effective September 1 and to 9.14% effective December 1. Determine the total interest cost.

Question 39

Dirk Propp borrowed $14 300.00 for investment purposes on May 19 on a demand note providing for a variable rate of interest and payment of any accrued interest on December 31. He paid $1300.00 on June 28, $1450 on September 25, and $4200.00 on November 15. How much is the final payment on December 31 if the rate of interest was 11.5% on May 19, 8.21% effective August 1, and 6.35% effective November 1? Use the declining balance method.

Question 40

Amertech borrowed $32 000.00 from Balzac Credit Union on May 17 at 12%. The interest rate was changed to 14.11% effective July 1 and to 13.27% effective October 1. The loan was repaid by payments of $17 000.000 on July 15 and the balance, including the accumulated interest, on November 20. How much did the loan cost?

Question 41

You bought a $100 000 364-day T-bill. The T-bill was discounted at a rate of 5%. If you paid $99 900.00 for the T-bill, how many days before maturity did you buy it?

A) 7.3 days
B) 3.7 days
C) 37 days
D) 73 days
E) 1 day

Question 42

A promissory note has a face value of $4500 and it carries an interest rate of 8.73% for a period of 4 months (including the period of grace). It is sold 3 months before the legal due date.What is the present value of the note on the date of sale if money is worth 8.2%?

A) $4573.92
B) $4537.92
C) $4357.92
D) $4592.37
E) $4777.92

Question 43

Calculate the legal due date of a $10 000, 120-day note with interest at 4.56% dated March 31, 2012.

A) July 28
B) July 29
C) August 1
D) August 2
E) August 3

Question 44

A promissory note has a face value of $5000 and it carries an interest rate of 5% for a period of 6 months (including the period of grace). It is sold 3 months before the legal due date. What is the present value of the note on the date of sale if money is worth 4%?

A) $5047.26
B) $5070.26
C) $5074.26
D) $5125.00
E) $5125.26

Question 45

Determine the missing information for the following line of credit.
Harold has a line of credit secured by the equity in his home. The limit on his line of credit is $85 000. Transactions for the period May 1 to September 30 are shown below. Harold owed $45 967.06 on his line of credit on May 1.
-----------------------------------------------------------------
Note: "-" indicates a negative balance.
Overdraft interest is 28.8% p.a. The line of credit interest is variable. It was 6.15% on May 1, 6.50% effective June 20, and 6.55% effective September 10.
a) Calculate the interest payments on May 31, June 30, July 31, August 31, and September 30.
b) What is the account balance on September 30?

Question 46

You bought a $100 000 91-day T-bill for $99 453.67 61 days before maturity. What discount rate was used?

A) 3.29%
B) 2.39%
C) 3.49%
D) 4.39%
E) 3.99%

Question 47

You borrowed the amount indicated in the Balance after payment column of the following schedule from your friendly credit union. You agreed to repay the loan in monthly payments equal to of the original loan, including interest due and principal. Interest is charged at a rate of 12.2% per annum computed on the monthly balance.
Required: Complete the repayment schedule (this includes totalling of the Payment, Interest paid and Principal repaid columns to check the accuracy of your work).
a) What is the loan balance after the third payment?
b) What is the total amount needed to repay the loan?

Question 48

Raymond borrowed $3900.00 from Airdrie Regional Savings. The line of credit agreement provided for repayment of the loan in four equal monthly payments plus interest at 9.56% per annum calculated on the unpaid balance. Determine the total interest cost.

Question 49

Calculate the legal due date of a $600.00, 120 day note with interest at 5% dated March 2, 2014.

A) July 5
B) July 2
C) June 30
D) July 3
E) July 31

Question 50

You bought $150 000 in 364-day T-bills. The T-bills were discounted at a rate of 4.432%. If you paid $148 811.24 for the T-bills, how many days before maturity did you buy it?

A) 6.527 days
B) 605.27 days
C) 56.27 days
D) 52.67 days
E) 65.79 days

Question 51

Sean borrowed $3000.00 from Sepaba Savings and Loan. The line of credit agreement provided for repayment of the loan in three equal monthly payments plus interest at 6.00% per annum calculated on the unpaid balance. Determine the total interest cost.

Question 52

A promissory note has a face value of $5175.00 and it has a date of issue of April 2 this year. The term is for 5 months. The rate of interest is 6.75%. What is the maturity value of the note?

A) $5324.30
B) $5234.30
C) $5342.30
D) $5334.20
E) $5444.30

Question 53

Calculate the maturity value of a 180-day note for $4000 dated August 18 if the rate of interest is 7.5%.

A) 4147.95
B) 4150.41
C) 5479.45
D) 5504.11
E) 4440.41

Question 54

A non-interest bearing promissory note has a $3100 maturity value and it matures in 90 days. You decide to sell the note 17 days before the legal due date. How much money do you sell it for if money is worth 5.15%?

A) $3029.58
B) $3209.58
C) $3092.58
D) $3058.92
E) $3222.58

Question 55

The owner of Easy Clips borrowed $8800.00 from Red Deer Community Credit Union on June 17. The loan was secured by a demand note with interest calculated on the daily balance and charged to the store's account on the 5th day of each month. The loan was repaid by payments of $2500.00 on July 25, $2300.00 on October 17, and $3500.00 on December 30. The rate of interest charged by the credit union was 6.5% on June 17. The rate was changed to 6.65% effective July 1 and to 6.95% effective November 1. Determine the total interest cost on the loan, up to and including Dec. 30.

Question 56

You borrowed $4600 at 9.1% per annum calculated on the unpaid monthly balance and agree to repay the principal together with interest in monthly payments of $1050 each. Construct a complete repayment schedule.

Question 57

A promissory note has a face value of $6000 and it has a date of issue of June 1 this year. The term is for 6 months. The rate of interest is 8.00%. What is the maturity value of the note?

A) $6242.60
B) $6246.60
C) $6200.60
D) $6248.60
E) $6244.60

Question 58

You purchase a 182-day treasury bill for $240,000 at a rate of 3.546%. What did you sell it for 111 days before maturity if the new interest rate is 3.778%?

A) $238 220.20
B) $238 320.20
C) $238 200.20
D) $238 100.20
E) $241 469.24

Question 59

FIGURE 8.1 Basic Design of a Loan Repayment Schedule
Use the design shown in Figure 8.1 to construct a complete repayment schedule including the totaling of the Amount Paid, Interest Paid, and Principal Repaid columns for the following loan.
On April 22, Tim borrowed $2900.00 from Keewatin Credit Union at 6.5% per annum calculated on the daily balance. He gave the Credit Union four cheques for $535.00 dated the 15th of each of the next four months starting May 15 and a cheque dated October 15 for the remaining balance to cover payment of interest and repayment of principal.

Question 60

A promissory note has a face value of $1725 and it has a date of issue of October 1 this year. The term is for 4 months. The rate of interest is 6.13%. What is the legal due date of the promissory note?

A) Feb. 1
B) Feb. 2
C) Feb. 3
D) Feb. 4
E) Feb. 5

Question 61

Leonard buys a painting on his credit card for $14 990. He pays his credit card in full within the grace period of 11 days using his secured line of credit, which charges him prime (3%) plus 1%. He repays his loan in 168 days. If his credit card company charges him a rate of 28% after the grace period, what is the total amount of interest paid on the purchase of the painting?

A) $0
B) $206.99
C) $275.98
D) $126.49
E) $402.47

Question 62

Syed bought 168 day Government of Canada T-Bills on 30 April 2016, yielding 0.6%. The face value of the bills was $55 000. He immediately sold it to a client at a higher price that presented a yield to the client of 0.54%. What profit did Syed make?

A) $54 848.53
B) $54 863.64
C) $0
D) $15.11

Question 63

Excel Electronics is Eastern Alberta accepted a 6-month promissory note from a customer for the $3950 balance owed on the purchase of a refrigerator. The note was dated November 8, 2015 and charged interest at 6.99%. The store's proprietor sold the promissory note 38 days later to Standard Union finance company at a price that would yield Standard Union 19% rate of return on its purchase price. What price did Standard Union pay to the proprietor of Excel Electronics?

A) $4089.94
B) $4087.67
C) $3797.12
D) $3799.22

Question 64

You lend a friend $1300 on May 11th. The demand loan rate is 10.12%. Your friend makes a partial payment on May 26th for $550 and on June 19th for $675. You demand full repayment of the outstanding balance on July 17th. What is the final payment amount to? Use the declining balance method.

A) $68.10
B) $86.10
C) $88.10
D) $82.10
E) $96.10

Question 65

Saint Mary's Corporation issued a 150-day non-interest bearing note for $25 300 to Carlos Services on June 15. On August 21, the note was sold to Bearing Collections at a price reflecting a discount rate of 12.5%. What were the proceeds of the note?

Question 66

Lee is planning to buy furniture worth $7000 from Leons. He can buy on his MasterCard and pay it within 7 days following the grace period of 21 days. His second option is to buy on the personal (unsecured) line of credit and pay it back after 6 months. His third option is to use secured line of credit and pay it back in 9 months. MasterCard charges an interest rate of 19.9%. Unsecured line of credit charges a rate of prime (3%) plus 3% and secured line of credit charges a rate of prime plus 0.5%. What is his best option?

A) MasterCard
B) Unsecured line of credit
C) Secured line of credit
D) All options are the same
E) Either secured or unsecured line of credit.

Question 67

Average rate of return or yield on a 6-month Government of Canada treasury bills sold on June 18, 2013 was 1.04% (http://www.bankofcanada.ca/rates/interest-rates/t-bill-yields/). At this yield, what price was paid for a T-bill with a face value of $50 000?

A) $50 260
B) $49 740
C) $49 741.35
D) $260
E) $258.65

Question 68

Marty took a $5000 loan from a financial institute at a rate of 6%, which should be repaid in two equal installments of $2575.25 made every 4 months. How much more interest would have been paid, had Marty paid it in a single installment after 8 months?

A) $75.25
B) $150.50
C) $200
D) $49.50
E) $0

Question 69

Caprice buys a painting on his credit card for $14 990. She pays her credit card in full 3 days after the grace period of 11 days using her secured line of credit, which charges her prime plus 1%. She repays her loan in 168 days. The prime rate is 2.5% on the day of repayment of credit card loan and increases to 3% 90 days after that day. If her credit card company charges her a rate of 28% after the grace period, what is the total amount of interest paid on the purchase of the painting?

Question 70

Syed bought 168 day Government of Canada T-Bills on 30 April 2016, yielding 0.6%. The face value of the bills was $55 000. He immediately sold it to a client, Zeb, at a higher price that presented a yield to the client of 0.54%. Zeb sold the T-bills after 99 days, when the short term maturity had risen to 0.75%. What profit did Zeb make?

A) $15.11
B) $58.49
C) $0
D) $24.70

Question 71

You borrow $4000 on August 2nd this year. Your demand loan carries an interest rate of 8.41%. You make partial payments of $500 on September 15th and $1575 on October 17th. You want to make a final payment to pay off the remaining outstanding balance on November 21st. What is the size of your final payment? Use the declining balance method.

A) $2080.18
B) $2018.80
C) $2208.18
D) $2007.72
E) $2777.72

Question 72

Islamic banking is being introduced in Oman, such that no interest is given on the promissory notes. Compute the present value on the date of issue of a non-interest-bearing, worth $850 000, three-month promissory note dated September 1, 2013 (plus 3 days of grace), if money is worth 12.5% in Oman.

A) $824 311
B) $847 272
C) $877 363
D) $823 490
E) $26 510

Question 73

Average rate of return or yield on 180-day Government of Canada treasury bills sold on June 18, 2013 was 1.04%. The client sold the $50 000 T-bill after 39 days. What rate of return (per annum) did the client realize while holding the T-bill, if the short term interest for this maturity had risen to 1.13% by the date of sale?

Question 74

CIBC approved a $10 000 personal line of credit on a demand basis to Tara, who takes an advance of $2240 on 1st of every month to settle her monthly budget. She settles her loan when she receives her pay on 15th of every month. Interest at the rate of prime (3%) plus 2.75% is charged to the account at the bank on the 15th of each month. What is Tara's payment each month to settle the loan?

A) $2245.29
B) $5.29
C) $2240
D) $2368.80
E) $2263.63

Question 75

You take out a demand loan on February 17th, in a non-leap year, with a local financing company. The loan is for $4500 at an interest rate of 12.15%. The interest rate rises to 12.75% on March 18th and then goes down to 12.25% on April 29th. You make partial payments of $900 on March 2nd and $1700 on May 14th. The loan is demanded in full on June 21st. What is the size of the final payment?

A) $2063.37
B) $2043.37
C) $2083.37
D) $2036.37
E) $2116.37

Question 76

PC Financial approved a $75 000 line of credit on a demand basis to Little Blessings day care to finance equipment. Interest at the rate of prime plus 1% is charged to the account at the bank on the 15th of each month. The initial advance was $45 000 on July 15, when the prime rate stood at 3%. There were further advances of $8000 on August 20 and $10 000 on September 10. Payments of $15 000 each were applied against the principal on October 1 and November 1. What was the total interest accumulated on the loan for the period July 15 to November 15?

Question 77

Caprice buys a painting on his credit card for $14 990. She pays her credit card in full 3 days after the grace period of 11 days using her secured line of credit, which charges her prime (3%) plus 1%. She repays her loan in 168 days. If her credit card company charges her a rate of 28% after the grace period, what is the total amount of interest paid on the purchase of the painting?

Question 78

Marty took a $5000 loan from a financial institute at a rate of 6%, which should be repaid in two equal installments made every 4 months. What should be the value of the installment?

Question 79

Zahid purchased a large-screen TV at a local store in December, that had advertised, "No payment for 6 months." Amount to be paid after 6 months is $1495 plus HST (13%) plus an administration fee of $79. If money is worth 2.5%, what is the actual cost of the TV to Zahid on the day of the purchase?

A) $1746.52
B) $1790.45
C) $1476.54
D) $1554.57
E) $1768.35

Question 80

Leon's advertised a "No payment, No interest" plan for one year on all their dining set. Hab bought a dining set for $4520 plus 13% HST and an administration fee of $99 on 14 May 2016. On the same day, Sally bought the same dining set, paid the amount in full, but convinced the general manager of the store to give her a discount based on Canada's inflation rate, which is translated into a money worth of 2%. What did Sally pay?