Ch 10 Calculation of Simple Interest and Maturity Value

Solve for the missing item in the following. Principal: $400; Interest Rate: 8% and Time: Xmonths and Simple Interest: $192

$192 = $400 x .08 x T $192 = $32xT 6 yrs = T

Solve for the missing item in the following. Principal: $X; Interest Rate: 4.25% and Time: 3 1/4months and Simple Interest: $330

$330 = P x .0425 x 3.25 $330 = P x 0.138125 $2,389.14 = P

Nolan Walker decided to buy a used snowmobile since his credit union was offering such low interest rates. He borrowed $3,900 at 4.25% on December 26, 2019, and paid it off February 21, 2021. How much did he pay in interest? (Assume ordinary interest and no leap year.) Principal: $3,900; Interest Rate: .0425 Time: 423 days

December 26 = 360 February 21 = 52 365 - 360 = 5 days left in 2019 + 365 days in 2020 + 52 days in 2021 = 422 = $3,900 × 0.0425 × 422/360 = $194.30

On May 3, 2020, Leven Corp. negotiated a short-term loan of $780,000. The loan is due October 1, 2020, and carries a 6.20% interest rate. Use ordinary interest to calculate the interest. What is the total amount Leven would pay on the maturity date?

Due date of loan Oct. 1= 274day Date of loan May 3= (-123)day T = 151 days on loan/360 $780,000 × 0.0620 × (151/360) =$20,284.33 interest $780,000+$20,284.33 = $800,284.33

Calculate the simple interest and maturity value of the following: Principal: $6,600; Interest Rate: 4% and Time: 12months.

Simple Interest: $264 = 6,600x0.04x12 Maturity Value: $6,864 = 6,600x.04x (12/12)

Exact Interest Method

Used by the Federal Reserves banks and government. Uses a 365 day year.

Harold Hill borrowed $15,000 to pay for his child's education at Riverside Community College. Harold must repay the loan at the end of 8 months in one payment with 4.25% interest. a. How much interest must Harold pay? b. What is the maturity value?

A) $15,000 x 0.0425 x (8/12) = $425 B) MV = P+ I $425 + $15,000 = $15,425

Lucky Champ owes $181.05 interest on a 6% loan he took out on his March 17 birthday to upgrade an oven in his Irish restaurant, Lucky's Pub and Grub. The loan is due on August 17. What is the principal? (Use 360 days a year)

August 17 = 229March 17 = 76229 - 76 = 153 Total Due = P X I X T $181.05 = P X 6% X (153/360) $7,100 = P

Complete the following, using ordinary interest. Principal: $1,468; Interest Rate: 10%; Date Borrowed: July 12; Date Repaid Jan 08 Find the Exact Time, Interest, and Maturity Value

Exact Time: 180 days (=365-193+8) Interest: $73.40 = $1,468x.10x(180/360) Maturity Value: $1,541.40 = $1,468+$73.40

Complete the following, using ordinary interest. Principal: $1,550; Interest Rate: 9%; Date Borrowed: May 3; Date Repaid July 27 Find the Exact Time, Interest, and Maturity Value

Exact Time: 85 days (=208-123) Interest: $32.49 = $1,550x.09x(85/365) Maturity Value: $1,582.49 = $1,468+$32.49

Complete the following, using ordinary interest. Principal: $1,100; Interest Rate: 5%; Date Borrowed: March 10; Date Repaid June 12 Find the Exact Time, Interest, and Maturity Value

Exact Time: 94 days (=Date Repaid-Date Borrowed) Interest: $14.36 = $1,100x.05x(94/360) Maturity Value: $1,114.36 = $1,100+$14.36

Principal

Face value of a loan

Max Wholesaler borrowed $5,000 on a 12%, 120-day note. After 45 days, Max paid $1,750 on the note. Thirty days later, Max paid an additional $1,500. Use ordinary interest. a. Determine the total interest using the U.S. Rule. b. Determine the ending balance due using the U.S. Rule.

45th Day: $5,000 ×0.12 × (45/360) = $75.00 $5000 - ($1750-$75) = $3,325 75th Day: $3,325 ×0.12 × (30/360) = $33.25 $3,325 - ($1500-$33.25) = $1858.25 120th Day: $1858.25 ×0.12 × (45/360) = $27.87 $1858.25 +$27.87 = $1,886.12 Total Interest: $136.12 = $75.00+$33.25+$27.87

Solve for the missing item in the following. Principal: $4,700; Interest Rate: X% and Time: 12months and Simple Interest: $423

$423 = $4,700 x I x (12/12) $423 = $4,700 x I 0.09 = I 9% = I

Given: Principal: $13,500; Interest Rate: 8% and Time: 240 days (ordinary interest) Partial Payments: On 100th day, $6,600 On 180th day, $3,800 a. Use the U.S. Rule to solve for total interest cost. Interest = Principle × Rate × Time b. Use the U.S. Rule to solve for balances. c. Use the U.S. Rule to solve for final payment.

1st payment =$13,500×0.08×(100/360) = $300.00 $6,600 - $300 = $6,300 100th day: $13,500 - $13,500 = $7,200 2nd Payment $7,200×0.08×(80/360) =$128 180th day: $3,800 -$128 = $3,672 Adjusted Balance: $7,200 - $3,672 = $3,528 60th day: $3,528.00 × 0.08 ×(60/360) = $47.04 $3,528.00-$47.04 = $3,575.04 a) 300 + 128 + 47.04 = $475.04 c)$3,575.04

Andres Michael bought a new boat. He took out a loan for $24,240 at 2.5% interest for 4 years. He made a $4,690 partial payment at 4 months and another partial payment of $3,440 at 8 months. How much is due at maturity? Principal: $24,240 Rate: 2.5% Time:4 years

Partial Payments: Interest = $24,240 x 2.5%x (4/12) = $202 Principal Payment = $4,690 - $202 = $4,488.00 $24,240 - $4,488.00 = $19,752.00 $19,752.00 × 0.0250 × 4/12 = $164.60 $3,440 - $164.60 = $3,275.40 $19,752.00 - $3,275.40 = $16,476.60 $16,476.60 × 0.0250 × 40/12 = $1,373.05 MV = $16,476.60 + $1,373.05 = $17,849.65

Maturity Value

Principal plus interest on a loan.

Simple Interest

Principal x Rate x Time