Question

question 6,7

6. (4 marks) A 182-day promissory note for $1000 with simple interest at 9% is signed on January 12 2018. After 62 days, it is sold to a finance company that charges a simple discount of 6%. a. How much does the finance company pay for the note? b. What is the simple interest rate of return that the finance company earns on its investment if it holds the note until its maturity? 7. (6 Marks) Jean owes $1000 due in 4 years and $9000 due in 9 years, both due with simple interest at 6%. What two payments, the first in 2 years and the other in 7 years would pay off both of these debts? The first payment will be double the size of the second payment. Use 6 years as the focal date. The simple interest rate is now 3%.

Answer 1

A 182-day Promissory Note is for $ 1000

Simple Interest rate = 9%

Interest Amount after 182-days in promissory note = $ 1000*0.9*182/365

= $ 44.88

A). After 62 days it is sold to finance company at simple interest of 6%

Amount finance company paid for the note = ($ 1000*.06*62/365) + $1000

= $ 1010.20

So, Finance company paid $ 1010.20 for the note.

B). Interest amount finance company paid = $ 10.20

   Interest amount finance company would receive on Investment= $ 44.88

Net income on Investment = $ 44.88- $ 10.20 : = $ 34.68

Calculating Interest rate earned on investment using simple interest rate formula

34.68 = $ 1000 * r * (182-62) /365

(34.68*365)/1000*120 = r

r = 10.548%

So, Finance company earned @ 10.548% simple interest on its invetsment

Note- Since I'm only allowed to answer 1 question as per guidelines, first has been answered.