Mathematics of Finance 8th Edition Test Bank

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1Student: ___________________________________________________________________________1.You invest $800 on May 25, 2007, on what day will you have earned exactly $31.96 of interest ifyour investment earns simple interest atr= 6%?A.August 31, 2007B.January 20, 2008C.January 23, 2008D.January 25, 20082.Youinvest $50,000 today. It earns simple interest at 15% for the first 5 months, 10% for the next 3months and 12% for the last 2 months. What is the accumulated value at the end of 10 months?A.$56,450B.$56,250C.$55,542D.$55,3753.You buy a stove for $1500 on February 20. The store gives you 4 months "interest free", afterwhich you must pay the $1500. However, the store charges an administration fee of $50, to bepaid today. What rate of simple interest,r, are you being charged for this "interest free" plan?A.10.49%B.10.34%C.10.14%D.10.00%4.You buy some furniture for $600. The department store offers you "no interest for 8 months" afterwhich you can pay the $600 in one lump sum. To take advantage of this deal, the store charges a$25 service fee, which is to be paidtoday. What rate ofsimple interest is the store charging youfor this "no interest" loan?A.0%B.5.80%C.6.05%D.6.52%

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5.You invest $2300 on June 10. On November 10, you have earned $72.42 of interest. What rate ofsimple interest did you earn?A.7.41%B.7.51%C.7.56%D.7.66%6.You invest $20,000 in a fund that earns simple interest atr= 7% for 2 years, followed by simpleinterest atr= 5% for 3 years. How much will you have at the end of 5 years?A.$25,800.00B.$26,220.00C.$26,507.30D.$26,050.507.You take out a loan of $Aat a simple interest rate ofrforn-days (n> 0). Under exact interest, youhave to pay back $8230 at the end ofn-days. If ordinary interest is used instead, what would bethe amount to be paid back at the end ofn-days?A.$8,230B.More than $8230C.Less than $8230D.Needmore information to determine8.Suppose you deposit $10,000 on March 21 in a fund earning simple interest atr= 13%. Howmuch will you have exactly 6 months later?A.$10,664.44B.$10,658.91C.$10,655.34D.$10,650.009.A merchant receives an invoice for $8000 with terms 2/10,n/50. What is the maximum interestrate that the merchant could borrow money at to take advantage of the discount?A.18.62%B.18.25%C.14.90%D.14.60%

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10.A loan of $10,000 is taken out on November 7, 2006 at a simple interest rate ofr= 9%. The loanwill be paid back on May 11, 2007. If the bank uses ordinary interest (the Banker's Rule), howmuch interest is charged?A.$443.84B.$450.00C.$456.16D.$462.5011.You deposit $10,000 in a 9-month investment that paysr= 8% for the first 6 months andr= 6%for the last 3 months. What is the maturity value of the investment at the end of 9 months?A.$10,544.80B.$10,550.00C.$10,556.00D.$10,563.6112.How long does it take for $5000 to become $10,000 at a simple interest rate ofr= 18% usingordinary interest (Banker's Rule)?A.5 years, 203 daysB.5 years, 200 daysC.5 years, 175 daysD.5 years, 173 days13.A wholesale electrical supply store is offering to its customers terms of 3/30,n/90. What is thehighest simple interest rate that A-1 Electric can afford to borrow money in order to takeadvantage of the discount?A.12.17%B.12.54%C.18.25%D.18.81%14.Interest of $300 is charged on a loan of $7300 bearing interest atr= 11%. What was the term ofthe loan? (Answer to the nearest day)A.131 daysB.134 daysC.136 daysD.142 days

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15.A merchant receives an invoice for $25,000 with terms 4/15,n/60. What is the highest simpleinterest rate at which he can afford to borrow in order to take advantage of the discount?A.24.3%B.25.3%C.32.4%D.33.8%16.An invoice for $12,000 has terms 1/20, n/45. If you take out a loan to take advantage of thediscount and the bank usesordinary interest(i.e. the banker's rule), what is the maximum rate ofsimple interest that you would be willing to pay?A.8.08%B.8.19%C.14.55%D.14.75%17.A merchant receives an invoice for a motor boat for $5000 with term 4/30,n/100. In order to takeadvantage of discount, he wants to borrow the required money. If he can borrow atr= 14%, howmuch money does he save?A.$74.08B.$71.12C.$65.75D.$63.1218.You deposit $100,000 on March 31, 2010 in a fund earning simple interest atr= 6%. Using thebanker's rule (ordinary interest), how much do you have on July 31, 2010?A.$102,000.00B.$102,005.48C.$102,033.33D.$102,050.0019.A merchant receives an invoice for $4000 with terms 4/30,n/100. What is the highest rate ofsimple interest at which he can afford to borrow in order to take advantage of the discount?A.14.60%B.15.21%C.20.86%D.21.73%

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20.You invest $8000 in a fund earning simple interest atr= 4% for the first 150 days followed byr=6% for the last 120 days. How much do you have in your fund at the end of 270 days?A.$8291.91B.$8289.32C.$8287.24D.$8284.7221.You invest $20,000. It earns simple interest at 7% for the first 5 months and 8% for the next 3months. What is the accumulated value at the end of 8 months?A.$20,998.06B.$20,995.00C.$20,986.30D.$20,983.3322.You buy a stove for $1500 on March 20, 2010. The store gives you 4 months "interest free", so onJuly 20, 2010 you must pay the $1500. However, the store charges an administration fee of $50,to be paid today. What rate of simple interest,r, are you being charged for this "interest free"plan?A.9.97%B.10.00%C.10.32%D.10.35%23.You buy goods for $10,000 and receive an invoice with terms 1/10,n/40. What is the maximumsimple interest rate that you would borrow money at totake advantage of the discount?A.9.13%B.9.22%C.12.17%D.12.29%24.A $12,000 short term loan was taken out on April 3, 2010 at a simple interest rate of 8%. Theamount repaid was $12,481.32. On what date in 2010 was the loanrepaid?A.October 1B.October 3C.October 6D.October 9

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25.A merchant receives an invoice for a motor boat for $5000 with term 3/30,n/100. In order to takeadvantage of discount, he wants to borrow the required money. If he can borrow atr= 18%, howmuch money does he lose (negative) or save (positive)?A.-$17.42B.-$22.60C.$22.60D.$17.4226.On March 24, 2014, Chen and Mary borrow $18,000 each at a simple interest rater= 12%.Chen's bank calculates interest using exact interest, while Mary's bank uses the Banker's Rule(ordinary interest). LetX= amount Chen pays back on September 24, 2014, andY= amountMary pays back on September 24, 2014. What is the value ofX-Y?A.-$15.12B.-$8.88C.$8.88D.$15.1227.Dave takes out a loan for $5000 to be repaid at the end of 9 months. The simple interest rate onthe loan isr= 9% for the first two month,r= 12 % for the next 6 months, andr= 6% thereafter.How much does Dave have to pay back at the end of 9 months?A.$5337.50B.$5450.00C.$5225.00D.$5400.0028.You buy some furniture for $800 and pay "no interest" forn-days. This means that aftern-days,you owe the furniture company $800. However, there is an administration fee of $50 that youmust pay today (when you buy the furniture). If the rate of simple interest that you are beingcharged is 12.4%, what isn(Answer to nearest day)?A.99 daysB.184 daysC.173 daysD.196 days

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29.Mary deposits $15,000 in a bank account earning simple interest rater= 5.25% on October 25,2013 and leaves it on deposit until February 4, 2014. Using exact interest, how much interest isearned during the entire investment period?A.$217.91B.$223.13C.$220.07D.$222.2330.Bob purchases a new smart phone for $500. The terms for the purchase are 2/30n/90. If Bobwould need to borrow money to take advantage of the discount, at what simple interest raterwillhe be indifferent as to borrowing to take advantage of the discount versus paying the full balancewhen due? (Assume exact interest).A.12.41%B.8.28%C.12.24%D.8.11%31.You invest $15,000 on December 2, 2010 at a simple interest rate ofr= 6%. Interest is to becalculated using ordinary interest (banker's rule). What is the accumulated value of yourinvestment on June 12, 2011?A.$15,407.50B.$15,473.42C.$15,477.53D.$15,480.0032.A merchant receives an invoice for $8000 with terms 2/10,n/60. What is the highest rate ofsimple interest at which he can afford to borrow in order to take advantage of the discount?A.14.60%B.12.17%C.14.90%D.12.42%

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33.You deposit $200,000 on April 29, 2012 in a fund earning simple interest atr= 7%. Using thebanker's rule (ordinary interest), how much do you have on September 29, 2012?A.$205,950.00B.$205,911.11C.$205,868.49D.$205,833.3334.You buy an oven for $1500 on March 20, 2013. The store gives you 4 months "interest free", soon July 20, 2013 you must pay the $1500. However, the store charges an administration fee of$75, which must be paid up front when you buy the oven (March 20, 2013). What rate of simpleinterest,r, are you being charged for this "interest free" plan?A.15.79%B.14.25%C.14.96%D.15.75%35.You borrow $800 today atr= 12% from a bank that uses ordinary interest (Banker's rule). Youpay back at least $845 inn-days. What is the value ofn?A.168 daysB.169 daysC.171 daysD.172 daysJim borrows $10,000 and writes a promissory note onNovember 10, 2007. The due date of thenote is February 18, 2008. The legal due date value (or maturity value) is $10,472.00.36.What simple interest rate,r, is Jim being charged on the promissory note?A.17.23%B.16.73%C.16.50%D.15.97%

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37.The note is sold to Kim on December 21, 2007. Kim discounts the note at a simple interest rate ofr= 15%. How much does Kim pay for the note?A.$10,298.48B.$10,211.81C.$10,224.10D.$10,168.49A promissory note for $6000 is written on April 23, 2007. The due date is October 4, 2007. Thesimple interest rate on the note isr= 10.5%.38.What is the maturity value of the note if ordinary interest (banker's rule) is used?A.$6283.07B.$6287.00C.$6288.25D.$6292.2539.The note is sold after 80 days to a bank for $6142.29. What rate of return,r, is earned by theoriginal owner (payee) of the note?A.10.43%B.10.57%C.10.67%D.10.82%40.Jim lends $8000 to Sally on September 23, 2006. Sally signs a promissory note, with the notedue in 10 months. The maturity value of the note is $8536.55. Jim sells the note to a bank onFebruary 23, 2007. If the bank wishes to earnr= 8%, what price does Jim get for the note?A.$8259.57B.$8261.18C.$8264.83D.$8268.27You borrow $Pon May 15, 2007. You write a promissory note to repay the loan in 9 months at asimple interest rate ofr= 7%.

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41.If the maturity value is $15,012.47, what is the face value of the note? (to nearest dollar)A.$14,264B.$14,258C.$14,250D.$14,20942.The note was sold 132 days prior to the maturity date to a bank. The bank pays $14,655.23 forthe note. What rate of simple discount,d,did they use to determine this price?A.5.91%B.6.43%C.6.58%D.6.74%43.A 6-month non-interest bearing promissory note with a face value of $2500 is taken out on Jan. 5,2007. What are the proceeds on Feb. 12, 2007 if the note is discounted using a simple interestrate ofr= 10%?A.$2380.02B.$2403.85C.$2405.75D.$2497.4044.What is the price of a $100,000 182-day T-bill if the yield rate is 5%?A.$97,506.85B.$97,567.50C.$102,493.15D.$102,556.9045.A loan was taken out on January 1, 2007 at a simple interest rate of 8.5%. Interest is to becalculated usingordinary interest(banker's rule). The amount repaid on December 29, 2007 is$13,027.02. What was the original amount of the loan?A.$11,998.64B.$12,001.25C.$12,006.47D.$12,014.21

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46.A $10,000 91-day T-Bill was purchased for $9889.05 to yield 4.5%. The T-bill is sold 32 days laterto an investor who wishes to yield 4.15%. At what price is the T-bill sold?A.$9897.59B.$9925.03C.$9928.06D.$9933.3647.A retailer buys goods from a supplier for $8000. The goods cost the supplier $7750. The retailersigns a non-interest bearing promissory note due in 120 days. After 10 days, the supplier sells thenote to a bank that discounts the note using a simple interest rate of 10%. What rate of return,r,did the supplier earn over the 10 days?A.0.1%B.4.6%C.7.5%D.9.6%48.A loan was taken out on March 3, 2010 at a simple interest rate of 8%. Interest is to be calculatedusingordinary interest(Banker's rule). The amount repaid in 6 months is $12,482.67. What wasthe original amount of the loan?A.$11,992.32B.$11,998.77C.$12,002.57D.$12,003.8349.A loan was taken out on January 1, 2010 at a simple interest rate of 8.5%. Interest is to becalculated usingordinary interest(Banker's rule). The amount repaid on December 29, 2010 is$13,027.02. What was the original amount of the loan?A.$12,014.21B.$12,011.63C.$12,001.25D.$11,998.64

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50.An investor bought a 91-day $25,000 Treasury Bill to yieldr= 3.5%. The investor sold the T-bill40 days later to another investor who wishes to yieldr= 3.25%. What price did the T-bill sell for?A.$25,104.15B.$25,089.04C.$24,886.99D.$24,880.3751.Andrew has a promissory note for$15,000 dated April 6, 2010. The note has a legal due date 123days later, with simple interest at 12%. Andrew sells the note on June 1, 2010 to a bank charginga simple interest rate of 15%. What are the proceeds of the sale?A.$15,202.77B.$15,188.40C.$15,184.55D.$15,170.1752.A 182-day T-Bill with a face value of $25,000 is purchased for $Xby an investor who wishes toyieldr= 3.50%. What isX?A.$24,558.29B.$24,564.24C.$24,565.33D.$24,571.1853.A loan ofPis taken out at a simple interest rate ofr= 10.4%. Two months later, a partial loanpayment of $500 is made. Of this payment, $301.34 went towards paying interest on the loanwhile $198.66 went to reducing the outstanding balance of the loan. What is the value ofP?(Answer to nearest dollar)A.$2898B.$3096C.$11,461D.$17,385

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54.ABC Company borrows $Pfrom XYZ bank on March 3, 2010 by writing a promissory note, due in6 months at a simple interest rate of 5%. The bank usesordinaryinterest in its calculations. If thematurity value of the note is $257,000, what isP? (Answer to nearest dollar)A.$250,494B.$250,581C.$250,596D.$250,68255.Mr. A lends $20,000 to Mr. B on May 6, 2010. A promissory note is written by Mr. B at a simpleinterest rate of 9%. The due date of the note is October 6, 2010. The maturity value of thenote is$20,769.32. Mr. C sells the note to a bank on August 6, 2010 for $20,419.16. What rate of returndoes the bank earn on their investment?A.9.78%B.10.26%C.11.71%D.11.95%56.On July 8, 2014, Josephine lends Joni $10,000. Joni gives Josephine a 90-day non-interestbearing promissory note with face amount $10,000. On August 12, 2014, Josephine sells the noteto a finance company that uses a simple interest rater= 5%. What are the proceeds received byJosephine?A.$9,925.22B.$9,921.17C.$10,043.49D.$10,047.9557.Which of the following statements is (are) true?(i) A merchant receives an invoice for $10,000 with terms 4/30,n/90. He/she should not takeadvantage of the discount if he/she can borrow money atr= 20%(ii) A 60-day promissory note has a maturity value of $5000. Its price 30-days before maturity, ata rate of simple discountd= 4%, is $4983.56A.Both are trueB.(i) onlyC.(ii) onlyD.Neither are true

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58.Jane borrows $10,000 and writes a promissory note on July 10, 2011. The due date is December12, 2011. The value on the maturity date is $10,472.00. Prior to the maturity date, it is sold to abank that discounts the note atr= 5%. If the bank pays $10,383.81 for the note, on what day wasit sold?A.October 11B.October 14C.October 17D.October 2059.A 120-day promissory note for $50,000 bears interest atr= 10%. It is sold 90-days before thematurity date to a bank that discounts the note atr= 15%. What does the bank pay for the note?A.$49,742.71B.$49,801.85C.$49,782.29D.$49,841.48John borrows $5000 from Brenda andwrites a 90-day promissory note. The amount due back onthe maturity date (legal due date) is $5137.50.60.What was the interest rate on the loan?A.10.79%B.11.15%C.10.50%D.10.65%61.After 30-days, the note is sold by Brenda to a bank that charges a simplediscountrate ofd=10%. What are the proceeds of the sale?A.$5050.33B.$5053.05C.$5048.83D.$5054.41

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62.A 182-day T-Bill with a face value of$50,000 is purchased for $Xby an investor who wishes toyieldr= 2.85%. What isX?A.$49,289.45B.$49,299.41C.$50,720.42D.$50,710.5563.A person borrows $100,000 at a simple interest rater= 24%. He is to repay the loan with 2payments, one at the end of 2 months and the other at the end of 6 months. The first payment isthe same as the 2ndpayment. Determine the size of the payments, using the end of 6 months asthe focal date.A.$46,296.30B.$48,076.92C.$53,846.15D.$53,925.9364.A debt of $3000 is due in 4 months and another $5000 is due in 9 months. Instead, it is agreedthat a payment of $X, made in 3 months, followed by a payment of $4000 in 10 months, will fullypay off the loan. Using 9 months as the focal date, what isXif the simple interest rate on the loanisr= 10%?A.$4365.96B.$3960.06C.$3896.83D.$3841.0165.A person owes $4000 ten (10) months from now. It is agreed that she can, instead, pay $Xnowand another $2000 two years from now to replace the given debts. If simple interest isr= 9%,what isXusing 8 months as the focal date?A.$1929.20B.$2026.02C.$2033.18D.$2155.17

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