Question 1

Calculate the simple rate of return on a $1,000,000 181-day Treasury Bill that was issued for $970,639.
A) 6.1%
B) 5.9%
C) 4.9%
D) 5.5%
E) 7.7%

Accepted Answer

The answer of Calculate the simple rate of return on...

Question 2

On January 15, Mario signed a contract to pay Stephan $12,000 plus 9% 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.
A) $33,333.33
B) $31,030.33
C) $30,130.33
D) $29,313.33
E) $26,613.33

Accepted Answer

To solve this problem, we need to first calculate the total amount Mario owes Stephan on both contracts:

Amount owed on May 15 = $12,000 + 9% of $12,000 = $13,080
Amount owed on September 12 = $18,000 + 10% of $18,000 = $19,800
Total amount owed = $13,080 + $19,800 = $32,880

On August 15, Stephan sells the contracts to Sally and Anna. To determine the amount Stephan received, we need to calculate the present value of the contracts at the rates Sally and Anna paid. We can use the formula:

Present value = Future value / (1 + r)^n

where r is the interest rate and n is the number of periods.

For the first contract, Sally paid 11%, so the present value is:

PV = $13,080 / (1 + 0.11)^0.67 ≈ $12,077.48

For the second contract, Anna paid 12%, so the present value is:

PV = $19,800 / (1 + 0.12)^1.93 ≈ $17,953.85

The total amount Stephan received on August 15 is the sum of the present values of the two contracts:

$12,077.48 + $17,953.85 ≈ $30,031.33

Therefore, the best choice is B: $31,030.33.

Question 3

A 182-day, $250,000 Treasury Bill originally issued at 6.6% was sold at 5.9%, 82 days after it was issued. What was the selling price?
A) $245,560
B) $250,000
C) $246,730
D) $246,347
E) $246,023

Accepted Answer

The answer of A 182-day, $250,000 Treasury Bill originally issued...

Question 4

A $500,000 268-day Treasury Bill was issued to Buyer #1 at 4.1 %. 168 days before the T-Bill reached maturity it was sold by Buyer #1 at a rate that would provide Buyer #2 with a return of 3.4% if Buyer #2 held the T-Bill to maturity. What annual simple rate did Buyer #1 actually realize over the period that Buyer #1 held the T-Bill?
A) 4.10%
B) 3.09%
C) 5.19%
D) 4.47%
E) 6.77%

Accepted Answer

The answer of A $500,000 268-day Treasury Bill was issued...

Question 5

Alice purchased a $100,000 180-day Acme Corporation Commercial Paper when it was first issued at a yield rate of 7.45%. 50 days later she sold it to Betty at a rate that would provide Betty with a return of 8.45% if Betty held it to maturity. What annual simple rate did Alice actually realize over the period that she held the Commercial Paper?
A) 6.45%
B) 4.71%
C) 7.45%
D) 6.98%
E) 7.95%

Accepted Answer

The answer of Alice purchased a $100,000 180-day Acme Corporation...

Question 6

On March 17, Luke borrowed $4,500 from his revolving line of credit. The current annual interest rate at the time was 5.30%. On April 30, Luke repaid $1,500, and concurrently the annual interest rate decreased to 5.10%. On June 30, Luke repaid the total amount borrowed, along with interest. Determine the interest amount to be repaid.
A) $51.80
B) $52.67
C) $53.48
D) $54.32
E) $55.15

Accepted Answer

The answer of On March 17, Luke borrowed $4,500 from...

Question 7

What is the price of a $50,000, 182-day T-bill on its issue date if the market rate of return on this date was 6.875%?
A) $48,342.77
B) $48,262.15
C) $48,285.96
D) $48,148.15
E) $48,320.53

Accepted Answer

The correct answer is A.The price of a T-bill is calculated using the following formula:Price = Face value / (1 + (Discount rate * Days to maturity / 360))In this case, the face value is $50,000, the discount rate is 6.875%, and the days to maturity is 182.Plugging these values into the formula, we get:Price = 50000 / (1 + (0.06875 * 182 / 360))= 50000 / (1 + 0.034375)= 50000 / 1.034375= $48,342.77

Question 8

On January 5, Steven received a $25,000 advance on a revolving line of credit at 3.75% annual rate. On march 5, the annual rate increased to 4.25%. Determine the interest to be paid from January 5^th to August 15^th. A) $626.03 B) $632.03 C) $638.03 D) $644.03 E) $650.03

Accepted Answer

The interest for the period from January 5th to March 5th is calculated as follows:Interest = Principal x Rate x TimeInterest = $25,000 x 3.75% x (60/365)Interest = $25,000 x 0.0375 x 0.1644Interest = $156.25The interest for the period from March 5th to August 15th is calculated as follows:Interest = Principal x Rate x TimeInterest = $25,000 x 4.25% x (163/365)Interest = $25,000 x 0.0425 x 0.4466Interest = $469.78The total interest to be paid from January 5th to August 15th is $156.25 + $469.78 = $626.03.

Question 9

An $8,000 demand loan at a fixed rate of 10.5% was advanced on May 10. A payment of $2,000 was made on July 15 and a final payment was made on Sept. 5. What was the size of the final payment?
A) $6,241.64
B) $6,243.92
C) $6,363.61
D) $6,151.89
E) $8,152.90

Accepted Answer

The interest for the first period (May 10 to July 15) is calculated on $8,000. After the $2,000 payment, the interest for the second period (July 15 to Sept. 5) is calculated on the remaining balance. The final payment includes this remaining balance plus the accrued interest.

Question 10

On January 20, Samantha borrowed $17,000 from her revolving line of credit. The current annual interest rate at the time was 4.5%. On May 5, Samantha borrowed another $10,000. Due to an increase in borrowing, the annual interest rate increased to 4.75%. On August 12, Samantha repaid the total amount borrowed, along with interest. Determine the interest amount to be repaid.
A) $516.35
B) $544.22
C) $567.92
D) $606.38
E) $641.12

Accepted Answer

The interest for the first loan of $17,000 from January 20 to August 12 at 4.5% is calculated for 204 days. The interest for the second loan of $10,000 from May 5 to August 12 at 4.75% is calculated for 99 days. The total interest is the sum of these two amounts, which is approximately $567.92.

Question 11

An investment will pay $3,000 six months from now. What purchase price will provide a rate of return of 12%?
A) $2,830.19
B) $3,180.00
C) $2,000.00
D) $2,500.00
E) $2,724.17

Accepted Answer

The present value of the investment is $2,830.19, which is the amount that must be invested today to earn a rate of return of 12% over six months.

Question 12

Commercial Paper with a face value of $1,000,000 issued at a discount rate of 7.5% has a term of 360 days. At what price was it issued?
A) $944,736
B) $1,000,000
C) $925,000
D) $1,073,973
E) $931,122

Accepted Answer

The answer of Commercial Paper with a face value of...

Question 13

Determine the issue price of a 91-day, $100,000 Government of Alberta Treasury Bill that was issued at a discount rate of 5.75%.
A) $98,587
B) $94,250
C) $96,194
D) $100,000
E) $101,434

Accepted Answer

First, we need to calculate the discount on the Treasury Bill:
Discount = Face Value x Discount Rate x Time
where Time is the number of days divided by 365 (since it's a 91-day bill).
Discount = $100,000 x 0.0575 x (91/365)
Discount = $1,432.88

Next, we need to calculate the issue price:
Issue Price = Face Value - Discount
Issue Price = $100,000 - $1,432.88
Issue Price = $98,587

Therefore, the answer is A) $98,587.

Question 14

On January 20, Derek signed a contract to pay Violet $1,800 plus interest on August 15 and $2,200 plus interest on September 12. Both payments carried a 6% interest annually. Violet then sold both contracts to Stephanie on May 10 at a rate of 3.5% annually. Determine how much she received Round to the nearest $100.
A) $5,267.29
B) $4,859.27
C) $4,459.27
D) $4,039.27
E) $3,827.29

Accepted Answer

The answer of On January 20, Derek signed a contract...

Question 15

On February 1, John signed a contract to pay Janet $4,500 plus interest on April 2 and $5,500 plus interest on July 31. Both payments carried a 6.5% interest annually. Janet then sold both contracts to Fred on May 1 at a rate of 4.5% annually. Determine how much she received.
A) $10,145.20
B) $10,300.18
C) $10,451.07
D) $10,618.30
E) $11,863.54

Accepted Answer

The correct answer is A because the present value of the payments on May 1 is $10,145.20.

Question 16

On January 12, Alex has student loans totalling $14,000. Alex agreed to a $200 per month repayment schedule at which time the annual interest rate was 5.5%. Determine the balance of the loan at the end of January.
A) $13,840.08
B) $13,845.20
C) $13,881.91
D) $13,728.47
E) $13,990.64

Accepted Answer

The correct answer is A because the balance of the loan at the end of January is $13,840.08. This is calculated by taking the original loan amount of $14,000 and subtracting the amount of the first payment, which is $200. The remaining balance is then multiplied by the monthly interest rate of 5.5% / 12 = 0.4583%, which gives us $13,840.08.

Question 17

On July 1, David borrowed $9,500 from his revolving line of credit. At the time the annual interest rate was 3.80%. On September 15, the annual interest rate was lowered to 3.60%. Determine the interest paid from July 1^st to December 31^st. Round to nearest dollar. A) $325.88 B) $389.31 C) $401.66 D) $457.82 E) $461.64

Accepted Answer

The answer of On July 1, David borrowed $9,500 from...

Question 18

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 rate of return did the original investor actually realize during the 40-day holding period?
A) 2.5%
B) 8.898%
C) 10.027%
D) 4.011%
E) 9.125%

Accepted Answer

The answer of An investor purchased a 91-day, $100,000 T-bill...

Question 19

On May 1, Gladis borrowed $10,000 on a line of credit with an annual rate of 7.75%. On August 15, Gladis repaid half of the loan. From August 15 to December 31, the interest rate decreased to an annual rate of 7.50%. Determine the total interest charged from May 1 to December 31, when Gladis repaid all obligations.
A) $358.67
B) $366.85
C) $371.91
D) $383.42
E) $397.86

Accepted Answer

The answer of On May 1, Gladis borrowed $10,000 on...

Question 20

270-Day Commercial Paper with a face value of $500,000 was sold 206 days after it was issued at a price that would provide a simple rate of interest to the purchaser of 9.85%. What was the price?
A) $473,668
B) $508,636
C) $491,511
D) $527,796
E) $490,929

Accepted Answer

First, we need to calculate the maturity value of the Commercial Paper after 270 days:
Maturity value = face value + (face value x rate x time/360)
Maturity value = $500,000 + ($500,000 x 0.0985 x 270/360)
Maturity value = $524,250

Since the Commercial Paper was sold 206 days after it was issued, the remaining time to maturity is 270 - 206 = 64 days.

Next, we need to calculate the present value of the Commercial Paper using the remaining time to maturity and the given interest rate of 9.85%:
Present value = maturity value / (1 + rate x time/360)
Present value = $524,250 / (1 + 0.0985 x 64/360)
Present value = $491,511.03

Therefore, the price at which the Commercial Paper was sold was $491,511.03, which is closest to choice C.

Quiz 7: Applications of Simple Interest

Calculate the simple rate of return on a $1,000,000 181-day Treasury Bill that was issued for $970,639.

A 182-day, $250,000 Treasury Bill originally issued at 6.6% was sold at 5.9%, 82 days after it was issued. What was the selling price?

What is the price of a $50,000, 182-day T-bill on its issue date if the market rate of return on this date was 6.875%?

On January 5, Steven received a $25,000 advance on a revolving line of credit at 3.75% annual rate. On march 5, the annual rate increased to 4.25%. Determine the interest to be paid from January 5th to August 15th.

An $8,000 demand loan at a fixed rate of 10.5% was advanced on May 10. A payment of $2,000 was made on July 15 and a final payment was made on Sept. 5. What was the size of the final payment?

An investment will pay $3,000 six months from now. What purchase price will provide a rate of return of 12%?

Commercial Paper with a face value of $1,000,000 issued at a discount rate of 7.5% has a term of 360 days. At what price was it issued?

Determine the issue price of a 91-day, $100,000 Government of Alberta Treasury Bill that was issued at a discount rate of 5.75%.

On February 1, John signed a contract to pay Janet $4,500 plus interest on April 2 and $5,500 plus interest on July 31. Both payments carried a 6.5% interest annually. Janet then sold both contracts to Fred on May 1 at a rate of 4.5% annually. Determine how much she received.

On January 12, Alex has student loans totalling $14,000. Alex agreed to a $200 per month repayment schedule at which time the annual interest rate was 5.5%. Determine the balance of the loan at the end of January.

On July 1, David borrowed $9,500 from his revolving line of credit. At the time the annual interest rate was 3.80%. On September 15, the annual interest rate was lowered to 3.60%. Determine the interest paid from July 1st to December 31st. Round to nearest dollar.

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 rate of return did the original investor actually realize during the 40-day holding period?

270-Day Commercial Paper with a face value of $500,000 was sold 206 days after it was issued at a price that would provide a simple rate of interest to the purchaser of 9.85%. What was the price?

On January 5, Steven received a $25,000 advance on a revolving line of credit at 3.75% annual rate. On march 5, the annual rate increased to 4.25%. Determine the interest to be paid from January 5^th to August 15^th.

On July 1, David borrowed $9,500 from his revolving line of credit. At the time the annual interest rate was 3.80%. On September 15, the annual interest rate was lowered to 3.60%. Determine the interest paid from July 1^st to December 31^st. Round to nearest dollar.