Simple Interest

Because simple interest is used on short-term notes, the time period is often given in days rather than months or years. We convert this to years by dividing by 360, assuming a 360 day year called a banker's year.

Use a banker's year described above to answer this question.

T-bills (Treasury bills) are one of the instruments the U.S. Treasury Department uses to finance public debt. If you buy a 300-day T-bill with a maturity value of $16,750 for $16,584.75, what annual simple interest rate will you earn? Express your answer as a percentage.

%. Round to the nearest thousandths of a percent (3 decimal places).

Use a banker's year described above to answer this question.

To complete the sale of a house, the you accept a 230-day note for $7,000 at 7% simple interest. (Both interest and principal are repaid at the end of the 230 days.) Wishing to use the money sooner for the purchase of another house, the you sell the note to a third party for $7,103 after 70 days. What annual simple interest rate will the third party receive for the investment? Express your answer as a percentage.

%. Round to the nearest thousandths of a percent (3 decimal places).

Buying a Car

You are purchasing a new car for $27,600. The dealership offers you three options:

• 0% financing: 0 down and 0% financing for 48 months.
• Rebate: 0 down. If you choose the rebate, you will need to secure a loan for the balance at your local bank.
• Down payment: Make a down payment of 5% or more and get financing at 1.5% compounded monthly for 48 months.

Use this information to answer questions 3-6 below.

Use the Buying a Car information above to answer this question.

What is your monthly payment if you choose 0% financing for 48 months?

$ . Round to the nearest dollar.

Use the Buying a Car information above to answer this question.

The rebate offer is $2900, and you can obtain a car loan at your local bank for the balance at 5.9% compounded monthly for 48 months. If you choose the rebate, what is your monthly payment?

$ . Round to the nearest dollar.

Use the Buying a Car information above to answer this question.

You want to make monthly payments of $513, but you don't want a car loan over your head for more than 48 months, so you decide to go with the down payment option. How much of a down payment do you need to make?

$ . Round to the nearest dollar.

Use the Buying a Car information above to answer this question.

Suppose you make a down payment of 17% of $27,600 and finance the rest at 1.5% compounded monthly for 48 months. How much interest do you pay over the life of the loan?

$ . Round to the nearest dollar.

Saving for Retirement

You decide to make monthly payments into a retirement fund earning 4.75% compounded monthly. Note: Payments are made at the end of each period.

Use this information to answer questions 7-9 below.

Use the Saving for Retirement information above to answer this question.

If your monthly payments are $89, how much will you have in your retirement fund after 40 years?

$ . Round to the nearest dollar.

Use the Saving for Retirement information above to answer this question.

You decide to deposit $190 each month into the retirement fund, and retire when you can afford to buy your dream boat, which costs $375,000. How many months will you need to make payments before you can retire?

months. Round to the nearest month.

Zero Coupon Bond

A zero coupon bond is a bond that is sold now at a discount and will pay its face value when it matures. No interest payments are made.

Use this information to answer questions 10-11 below.

Use the Zero Coupon Bond information above to answer this question.

A zero coupon bond with a face value of $22,000 matures in 22 years. What should the bond be sold for now if its rate of return is to be 5.24% compounded annually?

$ . Round to the nearest dollar.

Use the Zero Coupon Bond information above to answer this question.

You buy a zero coupon bond with a face value of $18,000 that matures in 29 years for $8,000. What is your annual compound rate of return?

%. Round to the nearest thousandths of a percent (3 decimal places).