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Self-Test Exercises 8

Self-Test Exercise 8, Solution 1:


10
Time period t = 10 months = years
12
10
Interest from the saving account I = Prt = 2000 × 0.03 × = $50.00
12
Interest from investment in Rex’s friend’s business I = Prt = 1500 × 0.0095 × 10 = $142.50
Therefore, the total interest he earned from both these investments = 50 + 142.50 = $192.50
Self-Test Exercise 8, Solution 3:
The interest she received I = S − P = 270.50 − 200 = $70.50
I 70.50
Interest rate r = = = 0.264375 = 26.4375% p.a.
Pt 200 × 16
12
New interest rate = 26.4375 + 2.5 = 28.9375%
16
New interest I = Prt = 200 × 0.289375 × = $77.166666... = $77.17
12
Therefore, she would receive 200 + 77.17 = $277.17 on maturity with the new interest rate.
Self-Test Exercise 8, Solution 5:
Let the single payment George would make in 5 months that would settle both payments be ‘x’
The focal date is given to be 5 months from now.
Let P1 be the equivalent value on the focal date of $2000 (paid in 10 months). Therefore, t1 = 10 − 5 = 5
months
Let P2 be the equivalent value on the focal date of $3000 (paid in 18 months). Therefore, t2 = 18 − 5 = 13
months
We have P1 + P2 = x
S1 (1 + rt1) −1 + S2 (1 + rt2)−1 = x

5 -1 13
2000 (1 + 0.06 × ) + 3000 (1 + 0.06 × ) -1 = x
12 12
1951.219512... + 2816.901408... = x
Therefore, we get x = $4768.120921... = $4768.12
Therefore, a single payment of $4768.12 in 5 months will settle both payments.
Self-Test Exercise 8, Solution 7:
Let P be the principal amount of the demand loan
From the days table,
Feb 16: 47th day of the year

Last updated: June 18,2017


May 23: 143rd day of the year
Difference = 143 − 47 = 96 days
96
t1 = years and r 6% p.a.
1=
365
I1 = interest charged for the above period at 6% p.a.
96
= Prt = 8000 × 0.06 × = 126.246575…
365
May 23: 143rd day of the year
July 14: 195th day of the year
Difference = 195 – 143 = 52 days

52
t2 = years and r2 = 5.75%p.a.
365
I1 = interest charged for the above period at 6% p.a.
52
= Prt = 8000 × 0.0575 × = 65.534247…
365
Therefore, interest paid on the loan was 126.246575… + 65.534247…= $191.78
Self-Test Exercise 8, Solution 9:

Since it is an interest bearing note, the principal is the face value.


First calculate the maturity value of the note.

90
S = 25,000 (1 + 0.05 × )
365
= $25,308.21918…= $25,308.22
Now since it is sold in 60 days.
30
The time remaining is 90 − 60 = 30 days = years
365

P = S (1 + rt) -1
30 -1
= 25,308.22 (1 + 0.06 × )
365

= $25,184.02481...

= $25,184.02
Therefore, the proceeds will be $25,184.02.
Self-Test Exercise 8, Solution 11:

Last updated: June 18,2017


Assume the investment amount is $1000.

120
Maturity value in Option (a) =$1000(1 + 0.0175 × ) = $1,005.753425...
365
Assume the interest rate offered on the 60-day GIC after 60 days from now is r2

60 60
Therefore, 1005.753425... = 1000(1 + 0.015× ) (1 + r2× )
365 365
60
1005.753425... = 1002.465753... (1 + r2× )
365
0.003279... = 0.164383... r2
r2 = 0.019950…
= 2.00%
Therefore, the interest rate of 2.00% should be offered on the 60-day GIC after 60 days from now for Roberto to
earn the same amount of money from either option.

Last updated: June 18,2017