Deck 6: Simple Interest

Question 1

Calculate the missing value:

Answer 1

$272.57

Question 2

An invoice states that interest will be charged on overdue accounts at the rate of 1½% per month. What will be the interest charges on a $3,760 billing that is 3 months overdue?

Answer 2

$169.20

Question 3

What will be the maturity value after seven months of $2950 earning interest at the rate of 4.5%?

Answer 3

$3,027.44

Question 4

$12,800 was invested in a 237 day term deposit earning 3.75%. What was its maturity value?

Question 5

A five-month term deposit of $10,000 at the Scotiabank earned $75 in interest. What annual rate of simple interest did the deposit earn?

Question 6

The maturity value of an investment earning 7.7% per annum for a 360 day term was $2291.01. What amount was originally invested?

Question 7

After a term of 23 days, a loan at 10.5% has a maturity value of $785.16. What was the principal value of the loan?

Question 8

Calculate the missing value:

Question 9

Joyce had $2,149 in her daily interest savings account for the entire month of June. Her account was credited with interest of $2.65 on June 30 (for the exact number of days in June). What annual rate of simple interest did her balance earn?

Question 10

Maia's chequing account was $329 overdrawn beginning on September 24. On October 9 she made a deposit that restored a credit balance. If she was charged overdraft interest of $2.50, what annual rate of simple interest was charged?

Question 11

Calculate the missing value:

Question 12

Raimo borrowed $750 from Chris on October 30 and agreed to repay the debt with simple interest at the rate of 4.3% on May 10. How much interest was owed on May 10? Assume that February has 28 days.

Question 13

A $7760 investment earning 6.25% matured at $8083.33. What was the term (in months) of the investment?

Question 14

Calculate the missing value:

Question 15

On June 26 Laura put $2,750 into a term deposit until September 3, when she needs the money for tuition, books, and other expenses to return to college. For term deposits in the 60-89-day range, her credit union pays an interest rate of 4.25%. How much interest will she earn on the term deposit?

Question 16

How much must be placed in a 5-month term deposit earning 4.3%, simple interest, in order to earn $500 interest?

Question 17

Calculate the missing value:

Question 18

How much interest will be earned on $5,000 in 5 months if the annual simple interest rate is 1.5%?

Question 19

The interest owed on a loan after 5 months was $292.50. If the simple interest rate charged on the loan was 0.9% per month, what was the amount borrowed?

Question 20

On June 26, 2013, $1000 was borrowed at an interest rate of 10.75%. On what date was the loan repaid if the amount of accrued interest was $63.91?

Question 21

If $3,702.40 earned $212.45 interest from September 17, 2014 to March 11, 2015, what rate of interest was earned?

Question 22

Umberto borrowed $7,500 from Delores on November 7, 2013. When Umberto repaid the loan, Delores charged him $190.02 interest. If the rate of simple interest on the loan was 6.75%, on what date did Umberto repay the loan?

Question 23

What was the principal amount of a loan at 9.5% if $67.78 of interest accrued from October 28, 2013 to April 14, 2014?

Question 24

Megan was charged $124.83 interest on her bank loan for the period September 18 to October 18. If the rate of interest on her loan was 8.25%, what was the outstanding principal balance on the loan during the period?

Question 25

The bookkeeper for Durham's Garage is trying to allocate to principal and interest a payment that was made to settle a loan. The cheque stub has the note "$3,701.56 for principal and 7 months' interest at 12.5%." What are the principal and interest components of the payment?

Question 26

Asher cashed in a one-year term deposit after only five months had elapsed. In order to do so, he accepted an interest rate penalty-a reduction from the scheduled 5.5% rate of simple interest. If he was paid $145.83 interest on the $10,000 term deposit, what reduction was made in the per-annum rate of simple interest?

Question 27

A $2875.40 investment grew to $3000 after eight months. What annual rate of simple interest did it earn?

Question 28

The balance after 11 months, including, on a loan at 9.9% is $15,379.58. What are the principal and interest components of the balance?

Question 29

What was the interest rate on a $1750 loan if the amount required to pay off the loan after five months was $1,828.02?

Question 30

Jacques received the proceeds from an inheritance on March 15. He wants to set aside, in a term deposit on March 16, an amount sufficient to provide a $45,000 down payment for the purchase of a home on November 1. If the current interest rate on 181-day to 270-day deposits is 3.75%, what amount should he place in the term deposit?

Question 31

Indira paid interest charges of $169.05 on a $4830 invoice that was two months overdue. What monthly rate of simple interest was she charged?

Question 32

$7348.25 was the amount required to pay off a loan after 14 months. If the loan was at 8.25% per annum simple interest, how much of the total was interest?

Question 33

On what date was a $1000 loan granted if the interest accrued as of November 16, 2013 was $50.05? The interest rate on the loan was 7.25%.

Question 34

Morgan loaned $3,100 to Rolf at a simple interest rate of 0.65% per month. What was the term of loan if the total interest came to $221.65?

Question 35

Petra has forgotten the rate of simple interest she earned on a 120-day term deposit at Scotiabank. At the end of the 120 days, she received interest of $327.95 on her $21,000 deposit. What rate of simple interest was her deposit earning?

Question 36

Marta borrowed $1,750 from Jasper on November 15, 2014, and agreed to repay the debt with simple interest at the rate of 7.4% on June 3, 2015. How much interest was owed on June 3?

Question 37

What amount invested at 4.5% on November 19, 2014 had a maturity value of $10,000 on March 3, 2015?

Question 38

A loan of $3,300 at 9.25% simple interest was made on March 27. On what date was it repaid if the interest cost was $137.99?

Question 39

In addition to a $2,163 refund of his income tax overpayment, the Canada Revenue Agency (CRA) paid Raisa $13.36 of interest on the overpayment. If the simple interest rate paid by Revenue Canada was 5.5%, how many days' interest was paid?

Question 40

Marliss made a $780.82 purchase on her Visa card. Including 45 days' interest, the amount billed on her credit card was $798.63. What annual interest rate does her card charge?

Question 41

Today is March 25^th. Snow tires that you need are available today at a sale price of $89.95 each. If you wait until October 1 to buy the tires, you will pay the full price of $107.50 each. If you buy the tires today, you will need to borrow money at 12% per annum simple interest. Should you buy the tires today or wait until October 1. Explain.

Question 42

Mario borrowed $6,000 on March 1 at a variable rate of interest. The interest rate began at 7.5%, increased to 8% effective April 17, and then fell by 0.25% effective June 30. How much interest will be owed on the August 1 repayment date?

Question 43

How much will be required on February 1 to pay off a $3,000 loan advanced on the previous September 30 if the variable interest rate began the interval at 10.7%, rose to 11.2% effective November 2, and then dropped back to 11% effective January 1?

Question 44

The total accrued interest owed as of August 31 on a loan advanced the preceding June 3 was $169.66. If the variable interest rate started at 8.75%, rose to 9% effective July 1, and increased another 0.5% effective July 31, what was the principal amount of the loan?

Question 45

At what rate can money be invested if $2370.00 is equivalent to $2508.79 paid 190 days later?

Question 46

What amount received on January 13 is equivalent to $1,000 received on the preceding August 12 if money can earn 5.5%?

Question 47

What amount on January 23 is equivalent to $1,000 on the preceding August 18 if money can earn 6.5%?

Question 48

What annual rate of return would money have to earn for $1975.00 to be equivalent to $1936.53 paid 100 days earlier?

Question 49

Avril owes Value Furniture $1,600, which is scheduled to be paid on August 15. Avril has surplus funds on June 15 and will settle the debt early if Value Furniture will make an adjustment reflecting the current short-term interest rate of 3.25%. What amount should be acceptable to both parties?

Question 50

Sumer put $10,000 in a 3-month term deposit at TD Canada Trust, earning a simple interest rate of 3.9% pa. After the 3 months, she invested the entire amount of the principal and interest from the first term deposit in a new 3-month term deposit earning the same rate of interest. How much interest did she earn on each term deposit? Why are the two interest amounts not equal?

Question 51

What amount, seven months from now, is equivalent to $1215 today if money can be invested to earn 4.5%?

Question 52

Rasheed wishes to postpone for 90 days the payment of $450 that he owes to Roxanne. If money now earns 4.75%, what amount can he reasonably expect to pay at the later date?

Question 53

Patrick is scheduled to receive $1480 in 60 days from now. How much should he accept today as an equivalent payment if his money can earn 6.75%?

Question 54

The annual $3,600 membership fee at the Oak Meadows Golf Club is due at the beginning of the year. Instead of a single "lump" payment, a member can pay $1,600 at the start of the year and defer the $2,000 balance for five months by paying a $75 surcharge at the time of the second payment. Effectively, what annual rate of simple interest is Oak Meadows charging on the $2,000 deferred payment?

Question 55

Sergon has $5,000 to invest for six months. The rates offered on three-month and six-month term deposits at his bank are 3.5%3.8%, respectively. He is trying to choose between the six-month term deposit and two consecutive three-month term deposits. What would the simple interest rate on three-month term deposits have to be, three months from now, for Sergon to end up in the same financial position with either alternative? Assume that he would place both the principal and interest from the first three-month term deposit in the second three-month term deposit.

Question 56

What payment, 174 days from now, is equivalent to $5230 paid today? Assume that money is worth 5.25% per annum.

Question 57

A&B Appliances sells a washer-dryer combination for $1535 cash. C&D Appliances offers the same combination for $1,595 with no payments and no interest for 6 months. Therefore, you can pay $1,535 now or invest the $1535 for 6 months and then pay $1,595. What value would the annual rate of return have to exceed for the second alternative to be your advantage?

Question 58

What is meant by "equivalent payments"?

Question 59

Evelyn put $15,000 into a 90-day term deposit at Laurentian Bank paying a simple interest rate of 3.2%. When the term deposit matured, she invested the entire amount of the principal and interest from the first term deposit into a new 90-day term deposit earning the same rate of interest. What total amount of interest did she earn on both term deposits?

Question 60

What amount of money paid today is equivalent to $560 paid five months from now if money can earn 1.75% per annum?

Question 61

How can you determine whether two payment streams are equivalent to each other?

Question 62

What is meant by the "time value of money"?

Question 63

A payment stream consists of three payments:$1000 today, $1500 in 70 days, and $2000 in 210 days. What single payment, 60 days from now, is economically equivalent to the payment stream if money can be invested at a rate of 8.5%?

Question 64

Calculate the combined equivalent value today of $500 due today and $300 due in three months. Assume that money can earn 95%.

Question 65

Payments of $900 and $1000 are due in 30 days and 210 days respectively. If money can be invested at 7.75% what single payment 90 days from now is equivalent to that payment stream?

Question 66

Sheldrick Contracting owes Western Equipment $60,000 payable on June 14. In late April, Sheldrick has surplus cash and wants to settle its debt. If Western can earn 3.6% on its money, how much should Western accept on April 29?

Question 67

During its 50-50 Sale, Marpole Furniture will sell its merchandise for 50% down, with the balance payable in six months. No interest is charged for the first six months. What 100% cash price should Marpole accept on a $1,845 chesterfield and chair set if Marpole can earn a rate of return of 2.75% on its funds?

Question 68

Payments of $850 and $1,140 were scheduled to be paid today and nine months from now, respectively. What total payment today would place the payee in the same financial position as the scheduled payments? Money can earn 8.25%.

Question 69

Nicholas can purchase the same furniture from Store A for $2,495 cash or from Store B for $2,560 with nothing down and no payments or interest for 8 months. Which option should Nicholas choose if he can pay for the furniture by cashing in Canada Savings Bonds currently earning 3.9% per annum?

Question 70

How do you determine the economic value on a particular date of a series of payments?

Question 71

A $3000 loan at 5% was made on March 1. Two payments of $1000 each were made on May 1 and June 1. What payment on July 1 will pay off the loan?

Question 72

Two payments of $1,300 and $1,800 were scheduled to be paid five months ago and three months from now, respectively. The $1,300 payment has not yet been made. What single payment at a focal date one month from now would be equivalent to the two scheduled payments if money can earn 4.5 %?

Question 73

Westwood Homes is beginning work on its future College Park sub-division. Westwood is now pre-selling homes that will be ready for occupancy in nine months. Westwood is offering $5,000 off the $295,000 selling price to anyone making an immediate $130,000 down payment (with the balance due in nine months.) The alternative is a $5,000 deposit with the $290,000 balance due in nine months. Mr. and Mrs. Symbaluk are trying to decide which option to choose. They currently earn 4.8% on low-risk short-term investments.
a) What is the current economic cost of buying on the $130,000-down $5,000-off option?
b) What is the current economic cost of buying on the $5,000-deposit full-price option?
c) Which alternative should the Symbaluks choose? In current dollars, what is the economic advantage of the preferred alternative?

Question 74

Mr. and Mrs. Chan have listed for sale a residential building lot they own in a nearby town. They are considering two offers. The offer from the Smiths is for $145,000 consisting of $45,000 down and the balance to be paid in six months. The offer from the Kims is for $149,000 consisting of $29,000 down and $120,000 payable in one year. The Chans can earn an interest rate of 4.5% on low-risk short-term investments.
a) What is the current economic value to the Chans of each offer?
b) Other things being equal, which offer should the Chans accept? How much more is the better offer worth (in terms of current economic value)?

Question 75

A late payment of $850.26 was considered equivalent to the originally scheduled payment of $830.00, allowing for interest at 9.9%. How many days late was the payment?

Question 76

We frequently hear a news item that goes something like: "Joe Superstar signed a 5-year deal worth $25 million. Under the contract he will be paid $3 million, $4 million, $5 million, $6 million and $7 million in successive years." In what respect is the statement incorrect? How should the value of the contract be calculated?

Question 77

Peter and Reesa can book their Horizon Holiday package at the early-booking price of $3,850, or wait four months and pay the full price of $3,995.
a) Which option should they select if money can earn a 5.25% rate of return? In current dollars, how much do they save by selecting the preferred option?
b) Which option should they select if money can earn a 9.75% rate of return? In current dollars, how much do they save by selecting the preferred option?
c) At what interest rate would they be indifferent between the two prices?

Question 78

If money earns 9.5%, calculate and compare the economic value today of the following payment streams:
a) Payments of $900 and $1,400 due 150 and 80 days ago, respectively.
b) Payments of $800, $600, and $1,000 due 30, 75, and 125 days from now, respectively.

Question 79

What is the economic value today of each of the following payment streams if money can earn 7.5%? (Note that the two streams have the same total nominal value.)
a) $1,000, $3,000, and $2,000 due in one, three, and five months, respectively.
b) Two $3,000 payments due two and four months from now.

Question 80

Calculate the combined equivalent value in five months from now of a payment stream consisting of $1000 payable today and $1500 payable in five months? Assume money can earn 5.5%.