Question 1

A contract requires payments of $2,000 and $3,000, 90 days and 120 days, respectively, from today. What is the value of the contract today if the payments are discounted to yield a rate of return of 12% simple interest?

Accepted Answer

A)  $4,824.06 
B)  $4,828.66 
C)  $4,831.48 
D)  $4,837.87 
E)  $5,177.53

Question 2

A contract requires payments of $1,700 in 50 and 100 days with interest at 6%. What is the value of the contract today if the payments are discounted to yield 7.5% simple interest?

Accepted Answer

The answer of A contract requires payments of $1,700 in...

Question 3

The current rates on 90- and 180-day GICs are 5.5% and 6% simple interest, respectively. An investor is trying to decide whether to purchase a 90-day GIC and then reinvest its maturity value in a second 90-day GIC. What would the interest rate on 90-day GICs have to be 90 days from now for the investor to end up in the same financial position with either alternative?

Accepted Answer

A)  5.595% 
B)  6.500% 
C)  6.249% 
D)  6.413% 
E)  7.000%

Question 4

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.

Accepted Answer

The answer of Sam has a $10,000 personal line of...

Question 5

For amounts between $10,000 and $24,999, a credit union pays a rate of 1.25% simple interest on term deposits with maturities in the 91 to 120-day range. However, early redemption will result in a rate of 0.55% being applied. How much more interest will a 91-day $20,000 term deposit earn if it is held until maturity than if it is redeemed after 80 days?

Accepted Answer

The answer of For amounts between $10,000 and $24,999, a...

Question 6

Monica finished her program at New Brunswick Community College on June 3 with Canada Student Loans totalling $6,800. She decided to capitalize the interest that accrued (at prime plus 2.5%) during the grace period. In addition to regular end-of-month payments of $200, she made an extra $500 lump payment on March 25 that was applied entirely to principal. The prime rate dropped from 5% to 4.75% effective September 22, and declined another 0.5% effective March 2. Calculate the balance owed on the floating rate option after the regular March 31 payment. The relevant February had 28 days.

Accepted Answer

The answer of Monica finished her program at New Brunswick...

Question 7

An Investment Savings account offered by a trust company pays a rate of 0.25% on the first $1,000 of daily closing balance, 0.5% on the portion of the balance between $1,000 and $3,000, and 0.75% on any balance in excess of $3,000. What simple interest will be paid for the month of April if the opening balance was $2,439, $950 was deposited on April 10, and $500 was withdrawn on April 23?

Accepted Answer

The answer of An Investment Savings account offered by a...

Question 8

On January 15, Mario signed a contract to pay Stephan $12,000 plus 9% simple interest on May 15 and $18,000 plus 10% interest on September 12. On August 15, Stephan then sold the first contract to Sally at a rate of 11% and the other contract to Anna for 12%. Determine the amount Stephan received on August 15.

Accepted Answer

A)  $33,333.33 
B)  $31,030.33 
C)  $30,130.33 
D)  $29,313.33 
E)  $26,613.33

Question 9

A $100,000, 90-day commercial paper certificate issued by Bell Canada Enterprises was sold on its issue date for $98,950. What annual simple interest rate of return (to the nearest 0.001%) will it yield to the buyer?

Accepted Answer

The answer of A $100,000, 90-day commercial paper certificate issued...

Question 10

For investments of $5,000 to $24,999, a bank quotes interest rates of 2.65% on 90-day GICs and 2.85% on 180-day GICs. How much more simple interest will an investor earn by placing $15,000 in a 180-day GIC than by purchasing two consecutive 90-day GICs? (Assume that interest rates do not change over the next 90 days. Remember that interest earned from the first 90-day GIC can be invested in the second 90-day GIC.)

Accepted Answer

The answer of For investments of $5,000 to $24,999, a...

Question 11

Calculate missing value for the promissory note:

Accepted Answer

The answer of Calculate missing value for the promissory note:
...

Question 12

A 6-month non-interest-bearing promissory note issued on September 30, 2015 for $3,300 was discounted at 5.25% on December 1. What were the proceeds of the note?

Accepted Answer

The answer of A 6-month non-interest-bearing promissory note issued on...

Question 13

Calculate missing value for the promissory note:

Accepted Answer

The answer of Calculate missing value for the promissory note:
...

Question 14

An investor purchased a 91-day, $100,000 T-bill on its date of issue for $97,500, and sold it 40 days later for $98,475. What simple interest rate of return did the original investor actually realize during the 40-day holding period?

Accepted Answer

A)  2.5% 
B)  8.898% 
C)  10.027% 
D)  4.011% 
E)  9.125%

Question 15

Calculate missing value for the promissory note:

Accepted Answer

The answer of Calculate missing value for the promissory note:
...

Question 16

Calculate the maturity value of a 120-day, $1,000 face value promissory note dated November 30, 2015, and earning interest at 4.75% simple interest.

Accepted Answer

The answer of Calculate the maturity value of a 120-day,...

Question 17

For 90- to 365-day GICs, TD Canada Trust offered a rate of 3.00% simple interest on investments of $25,000 to $59,999 and a rate of 3.20% on investments of $60,000 to $99,999. How much more will an investor earn from a single $60,000, 270-day GIC than from two $30,000, 270-day GICs?

Accepted Answer

The answer of For 90- to 365-day GICs, TD Canada...

Question 18

Calculate missing value for the promissory note:

Accepted Answer

The answer of Calculate missing value for the promissory note:
...

Question 19

An agreement stipulates payments of $4,000, $2,500, and $5,000 in 3, 6, and 9 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum simple interest rate of return of 6.25%?

Accepted Answer

The answer of An agreement stipulates payments of $4,000, $2,500,...

Question 20

An agreement stipulates payments of $4,500, $3,000, and $5,500 in 4, 8, and 12 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum simple interest rate of return of 5.5%?

Accepted Answer

The answer of An agreement stipulates payments of $4,500, $3,000,...

Exam 7: Applications of Simple Interest

A contract requires payments of $2,000 and $3,000, 90 days and 120 days, respectively, from today. What is the value of the contract today if the payments are discounted to yield a rate of return of 12% simple interest?

A contract requires payments of $1,700 in 50 and 100 days with interest at 6%. What is the value of the contract today if the payments are discounted to yield 7.5% simple interest?

A $100,000, 90-day commercial paper certificate issued by Bell Canada Enterprises was sold on its issue date for $98,950. What annual simple interest rate of return (to the nearest 0.001%) will it yield to the buyer?

Calculate missing value for the promissory note:

A 6-month non-interest-bearing promissory note issued on September 30, 2015 for $3,300 was discounted at 5.25% on December 1. What were the proceeds of the note?

Calculate missing value for the promissory note:

An investor purchased a 91-day, $100,000 T-bill on its date of issue for $97,500, and sold it 40 days later for $98,475. What simple interest rate of return did the original investor actually realize during the 40-day holding period?

Calculate missing value for the promissory note:

Calculate the maturity value of a 120-day, $1,000 face value promissory note dated November 30, 2015, and earning interest at 4.75% simple interest.

For 90- to 365-day GICs, TD Canada Trust offered a rate of 3.00% simple interest on investments of $25,000 to $59,999 and a rate of 3.20% on investments of $60,000 to $99,999. How much more will an investor earn from a single $60,000, 270-day GIC than from two $30,000, 270-day GICs?

Calculate missing value for the promissory note:

An agreement stipulates payments of $4,000, $2,500, and $5,000 in 3, 6, and 9 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum simple interest rate of return of 6.25%?

An agreement stipulates payments of $4,500, $3,000, and $5,500 in 4, 8, and 12 months, respectively, from today. What is the highest price an investor will offer today to purchase the agreement if he requires a minimum simple interest rate of return of 5.5%?