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Mathematics of Finance 8th Edition Test Bank

Mathematics of Finance 8th Edition Test Bank simplifies your exam prep with detailed solutions and a wide range of test questions.

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    1 Student: ___________________________________________________________________________ 1. You invest $800 on May 25, 2007, on what day will you have earned exactly $31.96 of interest if your investment earns simple interest at r = 6%? A. August 31, 2007 B. January 20, 2008 C. January 23, 2008 D. January 25, 2008 2. You invest $50,000 today. It earns simple interest at 15% for the first 5 months, 10% for the next 3 months and 12% for the last 2 months. What is the accumulated value at the end of 10 months? A. $56,450 B. $56,250 C. $55,542 D. $55,375 3. You buy a stove for $1500 on February 20. The store gives you 4 months "interest free", after which you must pay the $1500. However, the store charges an administration fee of $50, to be paid today. What rate of simple interest, r , are you being charged for this "interest free" plan? A. 10.49% B. 10.34% C. 10.14% D. 10.00% 4. You buy some furniture for $600. The department store offers you "no interest for 8 months" after which you can pay the $600 in one lump sum. To take advantage of this deal, the store charges a $25 service fee, which is to be paid today . What rate of simple interest is the store charging you for this "no interest" loan? A. 0% B. 5.80% C. 6.05% D. 6.52%

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    5. You invest $2300 on June 10. On November 10, you have earned $72.42 of interest. What rate of simple interest did you earn? A. 7.41% B. 7.51% C. 7.56% D. 7.66% 6. You invest $20,000 in a fund that earns simple interest at r = 7% for 2 years, followed by simple interest at r = 5% for 3 years. How much will you have at the end of 5 years? A. $25,800.00 B. $26,220.00 C. $26,507.30 D. $26,050.50 7. You take out a loan of $ A at a simple interest rate of r for n - days ( n > 0). Under exact interest, you have to pay back $8230 at the end of n - days. If ordinary interest is used instead, what would be the amount to be paid back at the end of n - days? A. $8,230 B. More than $8230 C. Less than $8230 D. Need more information to determine 8. Suppose you deposit $10,000 on March 21 in a fund earning simple interest at r = 13%. How much will you have exactly 6 months later? A. $10,664.44 B. $10,658.91 C. $10,655.34 D. $10,650.00 9. A merchant receives an invoice for $8000 with terms 2/10, n /50. What is the maximum interest rate that the merchant could borrow money at to take advantage of the discount? A. 18.62% B. 18.25% C. 14.90% D. 14.60%

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    10. A loan of $10,000 is taken out on November 7, 2006 at a simple interest rate of r = 9%. The loan will be paid back on May 11, 2007. If the bank uses ordinary interest (the Banker's Rule), how much interest is charged? A. $443.84 B. $450.00 C. $456.16 D. $462.50 11. You deposit $10,000 in a 9 - month investment that pays r = 8% for the first 6 months and r = 6% for the last 3 months. What is the maturity value of the investment at the end of 9 months? A. $10,544.80 B. $10,550.00 C. $10,556.00 D. $10,563.61 12. How long does it take for $5000 to become $10,000 at a simple interest rate of r = 18% using ordinary interest (Banker's Rule)? A. 5 years, 203 days B. 5 years, 200 days C. 5 years, 175 days D. 5 years, 173 days 13. A wholesale electrical supply store is offering to its customers terms of 3/30, n /90. What is the highest simple interest rate that A - 1 Electric can afford to borrow money in order to take advantage of the discount? A. 12.17% B. 12.54% C. 18.25% D. 18.81% 14. Interest of $300 is charged on a loan of $7300 bearing interest at r = 11%. What was the term of the loan? (Answer to the nearest day) A. 131 days B. 134 days C. 136 days D. 142 days

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    15. A merchant receives an invoice for $25,000 with terms 4/15, n /60. What is the highest simple interest rate at which he can afford to borrow in order to take advantage of the discount? A. 24.3% B. 25.3% C. 32.4% D. 33.8% 16. An invoice for $12,000 has terms 1/20, n/45. If you take out a loan to take advantage of the discount and the bank uses ordinary interest (i.e. the banker's rule), what is the maximum rate of simple interest that you would be willing to pay? A. 8.08% B. 8.19% C. 14.55% D. 14.75% 17. A merchant receives an invoice for a motor boat for $5000 with term 4/30, n /100. In order to take advantage of discount, he wants to borrow the required money. If he can borrow at r = 14%, how much money does he save? A. $74.08 B. $71.12 C. $65.75 D. $63.12 18. You deposit $100,000 on March 31, 2010 in a fund earning simple interest at r = 6%. Using the banker's rule (ordinary interest), how much do you have on July 31, 2010? A. $102,000.00 B. $102,005.48 C. $102,033.33 D. $102,050.00 19. A merchant receives an invoice for $4000 with terms 4/30, n /100. What is the highest rate of simple interest at which he can afford to borrow in order to take advantage of the discount? A. 14.60% B. 15.21% C. 20.86% D. 21.73%

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    20. You invest $8000 in a fund earning simple interest at r = 4% for the first 150 days followed by r = 6% for the last 120 days. How much do you have in your fund at the end of 270 days? A. $8291.91 B. $8289.32 C. $8287.24 D. $8284.72 21. You invest $20,000. It earns simple interest at 7% for the first 5 months and 8% for the next 3 months. What is the accumulated value at the end of 8 months? A. $20,998.06 B. $20,995.00 C. $20,986.30 D. $20,983.33 22. You buy a stove for $1500 on March 20, 2010. The store gives you 4 months "interest free", so on July 20, 2010 you must pay the $1500. However, the store charges an administration fee of $50, to be paid today. What rate of simple interest, r , are you being charged for this "interest free" plan? A. 9.97% B. 10.00% C. 10.32% D. 10.35% 23. You buy goods for $10,000 and receive an invoice with terms 1/10, n /40. What is the maximum simple interest rate that you would borrow money at to take advantage of the discount? A. 9.13% B. 9.22% C. 12.17% D. 12.29% 24. A $12,000 short term loan was taken out on April 3, 2010 at a simple interest rate of 8%. The amount repaid was $12,481.32. On what date in 2010 was the loan repaid? A. October 1 B. October 3 C. October 6 D. October 9

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    25. A merchant receives an invoice for a motor boat for $5000 with term 3/30, n /100. In order to take advantage of discount, he wants to borrow the required money. If he can borrow at r = 18%, how much money does he lose (negative) or save (positive)? A. - $17.42 B. - $22.60 C. $22.60 D. $17.42 26. On March 24, 2014, Chen and Mary borrow $18,000 each at a simple interest rate r = 12%. Chen's bank calculates interest using exact interest, while Mary's bank uses the Banker's Rule (ordinary interest). Let X = amount Chen pays back on September 24, 2014, and Y = amount Mary pays back on September 24, 2014. What is the value of X - Y ? A. - $15.12 B. - $8.88 C. $8.88 D. $15.12 27. Dave takes out a loan for $5000 to be repaid at the end of 9 months. The simple interest rate on the loan is r = 9% for the first two month, r = 12 % for the next 6 months, and r = 6% thereafter. How much does Dave have to pay back at the end of 9 months? A. $5337.50 B. $5450.00 C. $5225.00 D. $5400.00 28. You buy some furniture for $800 and pay "no interest" for n - days. This means that after n - days, you owe the furniture company $800. However, there is an administration fee of $50 that you must pay today (when you buy the furniture). If the rate of simple interest that you are being charged is 12.4%, what is n (Answer to nearest day)? A. 99 days B. 184 days C. 173 days D. 196 days

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    29. Mary deposits $15,000 in a bank account earning simple interest rate r = 5.25% on October 25, 2013 and leaves it on deposit until February 4, 2014. Using exact interest, how much interest is earned during the entire investment period? A. $217.91 B. $223.13 C. $220.07 D. $222.23 30. Bob purchases a new smart phone for $500. The terms for the purchase are 2/30 n /90. If Bob would need to borrow money to take advantage of the discount, at what simple interest rate r will he be indifferent as to borrowing to take advantage of the discount versus paying the full balance when due? (Assume exact interest). A. 12.41% B. 8.28% C. 12.24% D. 8.11% 31. You invest $15,000 on December 2, 2010 at a simple interest rate of r = 6%. Interest is to be calculated using ordinary interest (banker's rule). What is the accumulated value of your investment on June 12, 2011? A. $15,407.50 B. $15,473.42 C. $15,477.53 D. $15,480.00 32. A merchant receives an invoice for $8000 with terms 2/10, n /60. What is the highest rate of simple interest at which he can afford to borrow in order to take advantage of the discount? A. 14.60% B. 12.17% C. 14.90% D. 12.42%

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    33. You deposit $200,000 on April 29, 2012 in a fund earning simple interest at r = 7%. Using the banker's rule (ordinary interest), how much do you have on September 29, 2012? A. $205,950.00 B. $205,911.11 C. $205,868.49 D. $205,833.33 34. You buy an oven for $1500 on March 20, 2013. The store gives you 4 months "interest free", so on July 20, 2013 you must pay the $1500. However, the store charges an administration fee of $75, which must be paid up front when you buy the oven (March 20, 2013). What rate of simple interest, r , are you being charged for this "interest free" plan? A. 15.79% B. 14.25% C. 14.96% D. 15.75% 35. You borrow $800 today at r = 12% from a bank that uses ordinary interest (Banker's rule). You pay back at least $845 in n - days. What is the value of n ? A. 168 days B. 169 days C. 171 days D. 172 days Jim borrows $10,000 and writes a promissory note on November 10, 2007. The due date of the note is February 18, 2008. The legal due date value (or maturity value) is $10,472.00. 36. What simple interest rate, r , is Jim being charged on the promissory note? A. 17.23% B. 16.73% C. 16.50% D. 15.97%

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    37. The note is sold to Kim on December 21, 2007. Kim discounts the note at a simple interest rate of r = 15%. How much does Kim pay for the note? A. $10,298.48 B. $10,211.81 C. $10,224.10 D. $10,168.49 A promissory note for $6000 is written on April 23, 2007. The due date is October 4, 2007. The simple interest rate on the note is r = 10.5%. 38. What is the maturity value of the note if ordinary interest (banker's rule) is used? A. $6283.07 B. $6287.00 C. $6288.25 D. $6292.25 39. The note is sold after 80 days to a bank for $6142.29. What rate of return, r , is earned by the original owner (payee) of the note? A. 10.43% B. 10.57% C. 10.67% D. 10.82% 40. Jim lends $8000 to Sally on September 23, 2006. Sally signs a promissory note, with the note due in 10 months. The maturity value of the note is $8536.55. Jim sells the note to a bank on February 23, 2007. If the bank wishes to earn r = 8%, what price does Jim get for the note? A. $8259.57 B. $8261.18 C. $8264.83 D. $8268.27 You borrow $ P on May 15, 2007. You write a promissory note to repay the loan in 9 months at a simple interest rate of r = 7%.

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    41. If the maturity value is $15,012.47, what is the face value of the note? (to nearest dollar) A. $14,264 B. $14,258 C. $14,250 D. $14,209 42. The note was sold 132 days prior to the maturity date to a bank. The bank pays $14,655.23 for the note. What rate of simple discount, d, did they use to determine this price? A. 5.91% B. 6.43% C. 6.58% D. 6.74% 43. A 6 - month non - interest bearing promissory note with a face value of $2500 is taken out on Jan. 5, 2007. What are the proceeds on Feb. 12, 2007 if the note is discounted using a simple interest rate of r = 10%? A. $2380.02 B. $2403.85 C. $2405.75 D. $2497.40 44. What is the price of a $100,000 182 - day T - bill if the yield rate is 5%? A. $97,506.85 B. $97,567.50 C. $102,493.15 D. $102,556.90 45. A loan was taken out on January 1, 2007 at a simple interest rate of 8.5%. Interest is to be calculated using ordinary interest (banker's rule). The amount repaid on December 29, 2007 is $13,027.02. What was the original amount of the loan? A. $11,998.64 B. $12,001.25 C. $12,006.47 D. $12,014.21

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    46. A $10,000 91 - day T - Bill was purchased for $9889.05 to yield 4.5%. The T - bill is sold 32 days later to an investor who wishes to yield 4.15%. At what price is the T - bill sold? A. $9897.59 B. $9925.03 C. $9928.06 D. $9933.36 47. A retailer buys goods from a supplier for $8000. The goods cost the supplier $7750. The retailer signs a non - interest bearing promissory note due in 120 days. After 10 days, the supplier sells the note to a bank that discounts the note using a simple interest rate of 10%. What rate of return, r, did the supplier earn over the 10 days? A. 0.1% B. 4.6% C. 7.5% D. 9.6% 48. A loan was taken out on March 3, 2010 at a simple interest rate of 8%. Interest is to be calculated using ordinary interest (Banker's rule). The amount repaid in 6 months is $12,482.67. What was the original amount of the loan? A. $11,992.32 B. $11,998.77 C. $12,002.57 D. $12,003.83 49. A loan was taken out on January 1, 2010 at a simple interest rate of 8.5%. Interest is to be calculated using ordinary interest (Banker's rule). The amount repaid on December 29, 2010 is $13,027.02. What was the original amount of the loan? A. $12,014.21 B. $12,011.63 C. $12,001.25 D. $11,998.64

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    50. An investor bought a 91 - day $25,000 Treasury Bill to yield r = 3.5%. The investor sold the T - bill 40 days later to another investor who wishes to yield r = 3.25%. What price did the T - bill sell for? A. $25,104.15 B. $25,089.04 C. $24,886.99 D. $24,880.37 51. Andrew has a promissory note for $15,000 dated April 6, 2010. The note has a legal due date 123 days later, with simple interest at 12%. Andrew sells the note on June 1, 2010 to a bank charging a simple interest rate of 15%. What are the proceeds of the sale? A. $15,202.77 B. $15,188.40 C. $15,184.55 D. $15,170.17 52. A 182 - day T - Bill with a face value of $25,000 is purchased for $ X by an investor who wishes to yield r = 3.50%. What is X ? A. $24,558.29 B. $24,564.24 C. $24,565.33 D. $24,571.18 53. A loan of P is taken out at a simple interest rate of r = 10.4%. Two months later, a partial loan payment of $500 is made. Of this payment, $301.34 went towards paying interest on the loan while $198.66 went to reducing the outstanding balance of the loan. What is the value of P ? (Answer to nearest dollar) A. $2898 B. $3096 C. $11,461 D. $17,385

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    54. ABC Company borrows $ P from XYZ bank on March 3, 2010 by writing a promissory note, due in 6 months at a simple interest rate of 5%. The bank uses ordinary interest in its calculations. If the maturity value of the note is $257,000, what is P ? (Answer to nearest dollar) A. $250,494 B. $250,581 C. $250,596 D. $250,682 55. Mr. A lends $20,000 to Mr. B on May 6, 2010. A promissory note is written by Mr. B at a simple interest rate of 9%. The due date of the note is October 6, 2010. The maturity value of the note is $20,769.32. Mr. C sells the note to a bank on August 6, 2010 for $20,419.16. What rate of return does the bank earn on their investment? A. 9.78% B. 10.26% C. 11.71% D. 11.95% 56. On July 8, 2014, Josephine lends Joni $10,000. Joni gives Josephine a 90 - day non - interest bearing promissory note with face amount $10,000. On August 12, 2014, Josephine sells the note to a finance company that uses a simple interest rate r = 5%. What are the proceeds received by Josephine? A. $9,925.22 B. $9,921.17 C. $10,043.49 D. $10,047.95 57. Which of the following statements is (are) true? (i) A merchant receives an invoice for $10,000 with terms 4/30, n /90. He/she should not take advantage of the discount if he/she can borrow money at r = 20% (ii) A 60 - day promissory note has a maturity value of $5000. Its price 30 - days before maturity, at a rate of simple discount d = 4%, is $4983.56 A. Both are true B. (i) only C. (ii) only D. Neither are true

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    58. Jane borrows $10,000 and writes a promissory note on July 10, 2011. The due date is December 12, 2011. The value on the maturity date is $10,472.00. Prior to the maturity date, it is sold to a bank that discounts the note at r = 5%. If the bank pays $10,383.81 for the note, on what day was it sold? A. October 11 B. October 14 C. October 17 D. October 20 59. A 120 - day promissory note for $50,000 bears interest at r = 10%. It is sold 90 - days before the maturity date to a bank that discounts the note at r = 15%. What does the bank pay for the note? A. $49,742.71 B. $49,801.85 C. $49,782.29 D. $49,841.48 John borrows $5000 from Brenda and writes a 90 - day promissory note. The amount due back on the maturity date (legal due date) is $5137.50. 60. What was the interest rate on the loan? A. 10.79% B. 11.15% C. 10.50% D. 10.65% 61. After 30 - days, the note is sold by Brenda to a bank that charges a simple discount rate of d = 10%. What are the proceeds of the sale? A. $5050.33 B. $5053.05 C. $5048.83 D. $5054.41

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    62. A 182 - day T - Bill with a face value of $50,000 is purchased for $ X by an investor who wishes to yield r = 2.85%. What is X ? A. $49,289.45 B. $49,299.41 C. $50,720.42 D. $50,710.55 63. A person borrows $100,000 at a simple interest rate r = 24%. He is to repay the loan with 2 payments, one at the end of 2 months and the other at the end of 6 months. The first payment is the same as the 2 nd payment. Determine the size of the payments, using the end of 6 months as the focal date. A. $46,296.30 B. $48,076.92 C. $53,846.15 D. $53,925.93 64. A debt of $3000 is due in 4 months and another $5000 is due in 9 months. Instead, it is agreed that a payment of $ X , made in 3 months, followed by a payment of $4000 in 10 months, will fully pay off the loan. Using 9 months as the focal date, what is X if the simple interest rate on the loan is r = 10%? A. $4365.96 B. $3960.06 C. $3896.83 D. $3841.01 65. A person owes $4000 ten (10) months from now. It is agreed that she can, instead, pay $ X now and another $2000 two years from now to replace the given debts. If simple interest is r = 9%, what is X using 8 months as the focal date? A. $1929.20 B. $2026.02 C. $2033.18 D. $2155.17

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