Question 1
| Find the interest paid on a loan of $1,200 for three years at a simple interest rate of 5% per year. |
| How much money will you pay after three years? |
| Principal |
| Rate |
| Time |
| Simple Interest (SI) |
| Maturity Value |
Question 2
| Find the maturity value of a loan of $1,750 for 28 months at 9.8% simple interest per year. | |
| Principal | |
| Rate | |
| Time | — Please make sure that the time periods for Time and Rate match. |
| Simple Interest (SI) | |
| Maturity Value |
Question 3
| Find the simple interest rate of a loan of $5,000 that is made for three years and requires $1,762.50 in interest. |
| Principal |
| Time |
| SI |
| Rate |
Question 4
| A loan of $16,840 is borrowed at 9% simple interest and is |
| repaid with $4,167.90 interest. What is the duration of the loan? |
| Principal |
| Rate |
| SI |
| Time |
Question 5
| How much money is borrowed if the interest rate is 9.25% simple interest |
| and the loan is made for 3.5 years and has $904.88 interest? |
| SI |
| Rate |
| Time |
| Principal |
Question 6
| Find the ordinary and exact interest for a loan of $1000 at a 5% annual | |||
| interest rate. The loan was made on March 15 and is due May 15. | |||
| Loan date | Loan date | ||
| Loan Due Date | Loan Due Date | ||
| Exact time | days | Exact time | days |
| Principal | Principal | ||
| Rate | Rate | ||
| Time | Time | ||
| Ordinary Simple Interest (SI) | Exact Simple Interest (SI) |
Question 7
| Find the bank discount and proceeds using ordinary interest for a loan to Michelle Anders for $7,200 | |
| at 8.25% annual simple interest from August 8 to November 8. | |
| Loan date | |
| Loan Due Date | |
| Exact time | days |
| Face Value (F) | |
| Discount Rate (D) | |
| Time Period (T) | years –> ‘Convert Exact time in days to years |
| Bank Discount (B) | |
| Proceeds (P) |
Question 8
| What is the effective interest rate of a simple discount note for $8,000, | |
| at an ordinary bank discount rate of 11%, for 120 days? | |
| Face Value (F) | |
| Discount Rate (D) | |
| Time Period (T) | years –> ‘Convert Exact time in days to years |
| Bank Discount (B) | |
| Proceeds (P) | |
| Rate |
Question 9
| SOLVED EXAMPLE | ||
| What is the effective interest rate for the first year for a loan of $20,000 | ||
| for three years if the interest is compounded quarterly at a rate of 12%? | ||
| Quoted Rate | 12.00% | quarterly |
| No. of compounding periods per year | 4 | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 |
| EAR | 12.55% | |
| 1. Ross Land has a loan of $8,500 compounded quarterly for four years at 6%. What is the effective interest rate for the first year for the loan? | ||
| Quoted Rate | ||
| No. of compounding periods per year | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |
| EAR | ||
| 2. Find the effective interest rate for the first year for a loan for four years compounded semiannually at an annual rate of 2% | ||
| Quoted Rate | ||
| No. of compounding periods per year | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |
| EAR | ||
| 3. What is the effective interest rate for the first year for a loan of $5,000 at 10% compounded daily for three years? | ||
| Quoted Rate | ||
| No. of compounding periods per year | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |
| EAR | ||
| 4. Depending on the issuer, a typical credit card agreement quotes an interest rate of 18 percent APR. Monthly payments are required. | ||
| What is the actual interest rate you pay on such a credit card? | ||
| Quoted Rate | ||
| No. of compounding periods per year | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |
| EAR | =EFFECT(B30, B31) | |
| 5. Find the effective interest rate for a loan of $3,500 at 10% interest compounded quarterly. | ||
| Quoted Rate | ||
| No. of compounding periods per year | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 | |
| EAR | =EFFECT(B36, B37) |
Question 10
| SOLVED EXAMPLE | ||
| Tim Bowling has $20,000 invested for three years at a 5.25% annual rate compounded daily. | ||
| How much interest will he earn? | ||
| Initial Investment (PV) | $20,000 | |
| Quoted Rate | 5.25% | |
| Compounding Frequency | Daily | Choose one |
| Number of compoundings (m) | 365 | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 |
| Quoted Rate divided by m = RATE | 0.0144% | |
| Number of Years | 3 | |
| NPER (Num. of years * m) | 1095 | |
| Ending Amount (FV) | $23,411.35 | |
| Compound Interest | $3,411.35 | |
| Exercise | ||
| Find the future value of a $15,000 money market investment at 2.8% annual interest compounded daily for three years. | ||
| Initial Investment (PV) | ||
| Quoted Rate | ||
| Compounding Frequency | ||
| Number of compoundings (m) | ||
| Quoted Rate divided by m = RATE | ||
| Number of Years | ||
| NPER (Num. of years * m) | ||
| Ending Amount (FV) | ||
| Compound Interest |
Question 11
| SOLVED EXAMPLE | ||
| The Holiday Boutique would like to put away some of the holiday | ||
| profits to save for a planned expansion. A total of $8,000 is needed in three years. How much | ||
| money in a 5.2% three-year certificate of deposit that is compounded monthly must be invested | ||
| now to have the $8,000 in three years? | ||
| Future Value Needed (FV) | $8,000 | |
| Quoted Rate | 5.2% | |
| Compounding Frequency | Monthly | Choose one |
| Number of compoundings (m) | 12 | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 |
| Quoted Rate divided by m = RATE | 0.4333% | |
| Number of Years | 3 | |
| NPER (Num. of years * m) | 36 | |
| Amount Invested Now (PV) | $6,846.78 | |
| Exercise | ||
| How much should be invested now to have $15,000 in six years if interest is 4% compounded quarterly? | ||
| Future Value Needed (FV) | ||
| Quoted Rate | ||
| Compounding Frequency | ||
| Number of compoundings (m) | ||
| Quoted Rate divided by m = RATE | ||
| Number of Years | ||
| NPER (Num. of years * m) | ||
| Amount Invested Now (PV) |
Question 12
| Jamie Juarez needs $12,000 in 10 years for her daughter’s college education. | |
| How much must be invested today at 2% annual interest compounded | |
| semiannually to have the needed funds? | |
| Future Value Needed (FV) | |
| Quoted Rate | |
| Compounding Frequency | Choose one |
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 |
| Quoted Rate divided by m = RATE | |
| Number of Years | |
| NPER (Num. of years * m) | |
| Amount Invested Now (PV) | |
| A loan of $8,000 for two acres of woodland is compounded quarterly at an annual | |
| rate of 6% for five years. Find the compound amount and the compound interest. | |
| Initial Investment (PV) | |
| Quoted Rate | |
| Compounding Frequency | Choose one |
| Number of compoundings (m) | For Quarterly, type 4; for semiannually, type 2; for annually, type 1; for monthly, type 12; for daily, type 365 |
| Quoted Rate divided by m = RATE | |
| Number of Years | |
| NPER (Num. of years * m) | |
| Ending Amount (FV) | |
| Compound Interest |