Deck 8: Simple Interest Applications

Question 1

What is the face value of a three-month promissory note dated July 30, 2013, with interest at 6.5 percent if its maturity value is $1742.84?

Answer 1

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 2

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.

Answer 2

Legal due date is April 5, 2015.
the interest period is February 28 - April 5 = 36 days
S = 9180; r = 0.072; t = P = = $9 115.27 Present value
Discount = 9180 - 9115.27 = $64.73

Question 3

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%.

Answer 3

Due date is 213 days after February 2, 2014, i.e., September 3, 2014.
Interest period is June 1 - September 3, i.e., 94 days.
S = 950.00; r = 0.0831; t = P = = = $930.09

Question 4

For the following promissory note, determine the amount of interest due at maturity.
$3000.00 Oakville, Ontario January 15, 2013. Six months
after date we promise to pay to the order of Hughes
Pet Supply Company * * * * * * * *EXACTLY* * * * * * *
3000.00* * * * * * * * * * *DOLLARS at Hughes Pet Supply
Company for value received with interest
at 9.00% per annum.
Due ____________________ (Seal) ____________________
(Seal) ____________________

Question 5

The maturity value of a five-month promissory note issued May 31, 2013, is $2 134.00. What is the present value of the note on the date of issue if money is worth 6.3%?

Question 6

Compute the present value of a 150-day non-interest-bearing promissory note for $5 000 dated June 15, if the note was sold on August 21 and money is worth 6.5%.

Question 7

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

Question 8

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 9

For the following promissory note, determine the amount of interest due at maturity.
$1195.00 Ottawa, Ontario January 29, 2012. Nine months
after date we promise to pay to the order of Badger
Lumber Company * * * * * * * *EXACTLY* * * * * * *
1195.00* * * * * * * * * * *DOLLARS at Badger Lumber
Company for value received with interest
at 8.25% per annum.
Due ___________________ (Seal) ____________________
(Seal) ____________________

Question 10

Determine the maturity value of a 120-day note for $2 260.00 dated May 9 and bearing interest at 5.66%.

Question 11

Find the maturity value of a $1 190, 7.275%, 120-day note dated February 5, 2013.

Question 12

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

Question 13

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 14

A 4-month, 7.26% percent promissory note dated June 10, 2013 has a maturity value of $6 231.34. What is the face value of the note?

Question 15

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 16

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

Question 17

Find the maturity date and the maturity value of a $1 415.00, 5.25%, 220-day note dated February 25, 2012.

Question 18

The maturity value of a 155-day 7.5% note dated March 14 is $1 721.74. Compute the face value of the note.

Question 19

Find the present value of a non-interest-bearing seven-month promissory note for $1 800 dated August 27, 2012, on December 4, 2012, if money is then worth 8.375%.

Question 20

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 21

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 22

A six-month promissory note dated November 8, 2013 is made at 6% for $2 900.00. What is the present value of the note thirty-eight days later if money is worth 7.2%?

Question 23

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 24

Linda borrowed $19 000.00 on August 17. She paid $4 500.00 on November 11, $5 500.00 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 25

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 26

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 27

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 28

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 29

Sean purchased a 182-day, $10 000 T-bill on its issue date for $9 754.25. What was the original yield of the T-bill?

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

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, $7 500.00 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 32

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 $17000.000 on July 15 and the balance, including the accumulated interest, on November 20. How much did the loan cost?

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

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 $1946 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 35

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 36

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 37

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

Question 38

Find the present value of a seven-month note for $3 940 dated April 1 with interest at 7.45% if money is worth 6%, on August 15?

Question 39

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 40

A 7-month note dated May 1, 2014 is made at 3.75% for $3 705. What is the present value of the note on September 4, 2014, if money is worth 6.87%?

Question 41

A promissory note has a face value of $4 500 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 42

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 43

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 44

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 45

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) $238220.20
B) $238320.20
C) $238200.20
D) $238100.20
E) $241469.24

Question 46

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.
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.
Repayment Schedule
Required: Complete the repayment schedule (this includes totaling 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 47

A promissory note has a face value of $1 725 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 48

You bought a $100,000 91-day T-bill for $99453.67 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 49

A promissory note has a face value of $5 175.00 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 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

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 52

Sean borrowed $3 000.00 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 53

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 54

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 55

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.
FIGURE 8.1 Basic Design of a Loan Repayment Schedule

Question 56

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 57

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 58

A promissory note has a face value of $6 000 and it has a date of issue of June1 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 59

Calculate the maturity value of a 180-day note for $4 000 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 60

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.
Principal Principal Interest
Date Withdrawal Payment Payment Balance
---------------------------------------------------------------------------------------------
May 01 -45 967.06
30 1200.00 ?
June 23 5 050.00
30 2200.00 ?
July 10 6700.00 ?
Aug 05 11 700.00
31 8200.00 ?
Sept 30 6200.00 ?
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 61

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 62

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 63

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