BADB1014 Quantitative Methods

Tutorial

A. Simple Interest

1. A store owner borrowed $36,000 at 11% from a bank to buy more inventory. Given that the loan is for 18
months, find the interest and the maturity value.

The interest is $ .

The maturity value is $ .

2. A construction company needs to borrow $380,000 for a new job. They decide to borrow the funds at 9% for
150 days. In 1980, the same note would have been at a rate of 22%. Find the difference in the interest
charges based on the two rates. Assume 360 days in a year.

The difference is $ . (Round to

the nearest dollar.)

3.
A homeowner borrowed $6620 for landscaping. He signed a 90-day note on May 11 at 8 ¼ % interest. Find the
due date and
the maturity value.

The due date (month/day) is / .

The maturity value is $ . (Round to

the nearest cent.)

4. On October 18, the owner of a company borrowed $80,000 on a 180-day promissory note at 8.5% interest.
Find the due date and the maturity value of the note.

The due date is / .

The maturity value is $ .

5. On January 31, Jackson Paints & Supplies borrowed $142,000 to build a metal building for use as a
warehouse. The 3-month loan has a rate of 8.5%. Find (a) the due date and (b) the maturity value of the

loan.

(a) The due date is (1) (2)

(b) The maturity value is $ . (Round to the nearest cent as needed.)

6. Melissa notes that her savings account earned $56.16 in nine months. If the The principal was $ .
interest for her account is 5.5%, what was her principal? (Round to the nearest cent.)
7. A person invested $3485 in mutual funds containing bonds. Find the rate, given that she earned $243.30 in
265 days. Use banker's interest with 360 days.

The interest rate is %.

(Round your answer to the nearest tenth of a percent.)

8. Jessica Noone deposited an inheritance of $15,000.00 in a bank and earned $500.00 in simple banker's
interest at a rate of 9.5%. Find the length of time the money was on deposit.

The time of the deposit was

days. (Round to the nearest day.)

9. 1
Allison Casso signed a promissory note for $660 at 11 % interest with ordinary interest charges of $45.41. Find
2
the term of
the note.

The term of the note is

days. (Round to the nearest day as

needed.)

10. An employee borrows $7000 from a bank to purchase some household items. She plans to repay the loan
with a bonus she is supposed to receive in 110 days. If she borrows the money at 11.1%, find the discount
and the proceeds. Use banker's interest of 360 days.

The discount is $ . (Round to

the nearest cent.)

The proceeds of the note are $ .

11. In order to plant Christmas trees in another field, Tom signed a note with a face value of $30,000 at a 10%
discount rate. Find the length of the loan in days given that the discount is $916.67. Use banker's interest of
360 days.

The length of the loan is

days. (Round to the nearest whole

number.)

12. Alexis needed $6500 to start a web page design company and signed a 190-day note with a face value of
$6892.17. Find the discount rate. Use banker's interest of 360 days.
 The discount rate is %. (Round to
the nearest tenth.)

13. Janice Petriceli needs $18,000 to prepare her web-page design business for opening. Her bank will loan her
the money at a banker's discount rate of 8.0% for 221 days. Find the face value of the note so that Ms.
Petriceli will have the required
$18,000. Use banker's interest of 360 days.

The face value of the simple discount note is $ . (Round

to the nearest cent.)

14. Jack Cobb signed a simple discount note with a face value of $9,600 at a discount rate of 6% for 4
months. Find the proceeds of the note and the effective interest rate.

Find the proceeds of the note.

$The effective interest rate is________ %. (Round to the nearest tenth of a percent.)

15. A business owner in England signs a 10% discount note for £30,000 English pounds with a bank in London. If
the proceeds are £28,831.36, find the time of the note in days.

The time of the note is ________days. (Round to the nearest whole number as needed.)

16. T & H Research and Consulting requires $320,000 to replace its mainframe computer. A bank will lend the funds
on a simple discount note for 180 days at a discount rate of 10%. Find the face value required to produce
proceeds of $320,000. Use this value to determine the effective interest rate. Use banker's interest of 360 days.
The face value of the note must be $__________ . (Round to the nearest dollar.)

The effective rate of interest is %. (Round to the nearest tenth of a percent.)

B. Compound Interest

1. Chi Tang, a business person from Taiwan, deposits 25,000 yen in a bank in Tokyo, Japan, which pays 8%
compounded semiannually. Find the balance in the account after 6 years and the interest earned.

How much is the balance in the account?

yen

How much is the interest?

yen
2. Bill Baxter has $28,000 to invest for a year. He can lend it to his sister who has agreed to pay 8%
simple interest for the year. Or, he can invest it with a bank at 6% compounded quarterly for the
year. How much additional interest would the simple interest loan to his sister generate? Find the
effective interest rate for both investments.

How much more will the simple interest loan generate compared to the bank loan?

$ (Round to the nearest cent as needed.)

Find the effective interest rate for the simple interest loan.

% (Round to the nearest hundredth as needed.)

Find the effective interest rate for the compound interest loan.

% (Round to the nearest hundredth as needed.)

3. A company lends $1,100,000 for 1 year at 24%, compounded monthly to another company that
manufactures tug boats. Find (a) the future value and (b) the interest.
.

(a) Future value = $

(b) Interest = $

4. William Jones has $20,000 to invest and believes that he will earn 3% compounded
semiannually. Find the compound amount if he invests (a) for 2 years and (b) for 10 years.
(c) Then find the additional amount earned due to the longer period.

(a) The compound amount for 2 years is

$ . (Round to the nearest cent as
needed.)

(b) The compound amount for 10 years is

$ . (Round to the nearest cent as
needed.)

(c) The difference in interest earned is

$ . (Round to the nearest cent as
needed.)
5. Mr. Jordan wants all of his grandchildren to go to college and decides to help financially. How
much must he give to each child at birth if they are to have $15,673 on entering college 18
years later, assuming 8% interest compounded annually?

How much should he give each child at birth?

$ (Round to the nearest cent as needed.)

6. A company recently expanded their assembly operations at a cost of $490,000. Management

expects that the investment will grow at a rate of 12% per year compounded annually for the
next 5 years. Find the future value of the investment. Then find the present value of that
amount at a rate of 8% per year compounded annually.

What is the future value of the investment?

$ (Round to the nearest cent as needed.)

What is the present value of that future value?

$ (Round to the nearest cent as needed.)

7. In 6 years, Mrs. Folkers must pay off a note with a face value of $15,000, and interest of 8%
per year, compounded semiannually. Find the future value of the note. Then find the amount
that the holder of the note should accept as complete payment today if money can be
invested at 6% per year, compounded quarterly.

What is the maturity value of the note?

$ (Round to the nearest cent as needed.)

How much money should the holder of the note accept as complete payment today?

$ (Round to the nearest cent as needed.)

8. Barbara knows that she will need to buy a new car in 5 years. The car will cost $15,000 by then.
 How much should she invest now at 4%, compounded quarterly, so that she will have enough to
buy a new car?

9. Southwest Dry Cleaners believes that it will need new equipment in 10 years. The equipment
will cost $26,000.
What lump sum should be invested today at 5% compounded semiannually, to yield $26,000?

10. An investment of $13,335 earns 12% interest compounded monthly for 2 years. (a) What
is the future value of the investment? (b) If money can be deposited at 8% compounded
quarterly, find the present value of the investment.

11. Rosa Burnett needs $7,000 in three years to make the down payment on a new car. How
much must she invest today if she receives 0.5% interest annually, compounded annually?

She must invest $__________ . (Round to the nearest cent as needed.)

12. . A bank loaned John Smith $3,000 for seven years compounded annually at 7%. How
much
interest was John required to pay on the loan?

John was required to pay $___________ of interest. (Round to the nearest cent as needed.)