INSTITUTE 4b IRAPU ATO

Financial mathematics MA. Karla Sandoval Zavala

PROBLEM: INTEREST AND SIMPLE DISCOUNT

1. What is the annual simple interest rate if a principal of $17,500 generates $750 of interest in 65
days?
Solution:
i=?
C = $17,500
I = $750
n = 65/360
M= C+ I
M= 17500+750=18250

M=C(1+in)
18250=17500[1+i(65/360)]
18250/17500=1+i(65/360)
1.04285-1=i(65/360)
0.04285/0.1805555=i
i = 0.237323
i = 23.73%
Answer: the annual simple interest rate is 23.73%

2. On June 21, $14,250 is deposited in a bank that pays 7.3% simple annual rate. How much is
accumulated on the following November 3?
Solution:
C= $14,250
i = 7.3% simple annual n = 135/360 M = ?

M=C(1+in)
M=14250[1+(0.073)(135/360)]
M=14640.09
Answer: On November 3, you will have $14,640.09 in the bank.

3. Mr. Gómez purchases various items of clothing in a department store for the amount of $25,550.
Settle your purchase with a 30% down payment and two equal payments of 30 and 60 days.
How much is each of the three payments if there are charges of 15.8% simple annual?
C = $25,550
i = 15.8 simple annual

Down payment = 30% of $25,550

25550*0.3=7665
 INSTITUTE 4b IRAPUATO

Financial mathematics MA. Karla Sandoval Zavala

Missing 25550 – 7665 =17885
Since the two payments are equal then: 17885/2=8942.5
We now know that each of the payments in the present is $8,942.5.

For the first payment within 30 days:

M 1 =C 1 (1+in)
M 1 =8942.5[1+(0.158)(1/12)] M 1 =9060.24

For the second payment in 60 days: M 2 =8942.5[1+(0.158)(2/12)] M 2 =9177.98

Answer: The down payment is $7,665, the first payment is $9,060.24 and the second
payment is $9,177.98

4. Lorena now invests $15,300 in an institution that pays interest of 8.7% simple annually. How
much will you have three months later in your investment and in how many days will you have
$16,700?
Solution: i = 8.7% simple annual

To find out how much you will have in three months: C = 15300 n = 3/12
M = C(1+in)
M = 15300[1+(0.087)(3/12)]
M = 15632.77

To find out how many days you will have $16,700:

M = 16700 C = 15300 n = ? in days M = C(1+in) 16700 = 15300[1+(0.087)(n)] 16700/15300
=1+0.087n 1.091503 =1+0.087n 0.091503 = 0.087nn=0.091503/0.087 n = 1.0517 in years n =
(1.0517)(360)=379 days

Answer: Lorena will have $15,632.77 in three months and needs 379 days to have
$16,700.
 INSTITUTE 4b IRAPU ATO
Financial mathematics MA. Karla Sandoval Zavala
5. A person invests $20,000 and three months later withdraws $8,500. How much do you have in
your account two months later? Suppose the interest rate is 19.8% simple per year.
Solution:
i = 19.8 simple annual
C = 20000

In three months you will have:

n=3/12
M=C(1+in)
M=20000[1+(0.198)(3/12)]
M=20990
Withdraw $8,500
20990-8500=12490

In two months you will have:

C=12490
n=2/12
M=12490[1+(0.198)(2/12)]
M= 12902.17

Answer: In two months you will have $12,902.17

6. What is the face value of a document that five months before expiration is trading at $25,000
with a simple annual discount rate of 8.12%?
Solution:
d=8.12% annual discount
P=25,000
n=5/12
P=M(1-nd)
25000=M[1-(5/12)(0.08120)]
25000=M(0.966166)
M=25000/0.966166
M=25875.47

Answer: The face value of the document is $25,875.47

7. Obtain the annual simple discount rate of a document, whose face value is $24,000 and sells for
$22,400, three months before expiration.
Solution:
M=24000
P=22400
n=3/12
d=? simple annual discount

D=MP
D=24000-22400=1600
 INSTITUTE 4b IRAPU ATO
Financial mathematics MA. Karla Sandoval Zavala
D=Mnd
1600=24000(3/12)d
1600=6000d
d=1600/6000
d=0.26666
d=26.66%

Answer: the annual discount rate of the document is 26.66%

8. How much does a document with a face value of $9,500 trade on June 21, if it expires on
August 15 and a simple annual 9.3% is discounted?
Solution:
M=9500
n=55 days
d= 9.3% simple annual discount

P=M(1-nd)
P=9500[1-(55/360)(0.093)]
P=9365.02

Answer: The commercial value of the document as of June 21 is $9,365.02

9. On February 10, an electromechanical device is purchased with an advance payment of $8,750

and a document dated June 15 for the remaining 65%, with interest of 13.5% annually.
Determine:
a. The cash price of the device
b. The face value of the document
c. The commercial value of the promissory note on March 19, considering a discount of
12.3% simple annual

Solution:
a. To know the cash price of the device:
The down payment is 8750 which is 35% of the price of the device, so by rule of 3:
price=(8750 X 100)/35 =25000.
Answer: The cash price of the device is $25,000

b. To know the face value of the document:

We know that the payment is the difference of 25,000 and the down payment = 25000-
8750 = 16250 n = 125/360
C=16250
i=13.5% simple annual
M=16250[1+(125/360)(0.135)]
M=17011.71
Answer: The face value of the document as of June 15 is $17,011.71

Financial mathematics MA. Karla Sandoval Zavala

c. To find out the commercial value of the promissory note as of March 19 with a simple
 INSTITUTE 4b IRAPU ATO
annual discount of 12.3%: n=88/360
M=$17,011.71
d=12.3% annual simple discount
P=M(1-nd)
P=17011.71[1-(88/360)(0.123)
P=16500.22
Answer: The commercial value of the document as of March 19 is $16,500.22

10. On February 23, Banco de Comercio deducted a simple annual rate of 16.93% from Mr. Pérez
on a document that expires on the following May 15, whose face value is $25,400. The same
day the bank transfers the document to Banco del Pacífico with a discount of 14.5% simple
annual rate. How much was the profit for Banco del Comercio?
Solution:

For Banco del Comercio:

M=25400
d=16.93% annual simple discount
n=81/360
P=25400[1-(81/360)(0.1693)]
P= 24432.45

For the Pacific Bank

M=25400
d=14.5% annual simple discount
n=81/360
P=25400[1-(81/360)(0.145)]
P=24571.32

The profit is 24571.32 – 24432.45 = 138.87

Answer: The profit for Banco de Comercio is $138.87