Review Exercises 8

Review Exercise 8, Solution 1:

We have P = $1950, S = $2129.55, r = 6.5% p.a. = 0.065
I = S − P = 2125 − 1950 = $175
I = Prt
I 175
t= = = 1.380670… years
Pr 1950× 0.065
Therefore, in terms of days, t = 1.380670... – 1 = 0.380670 × 12 = 4.568040… months (rounded off to 5
months)
Therefore, it will take 1 year and 5 months for the investment to accumulate to the given value.
Review Exercise 8, Solution 3:
From the days table,
June 4: 155th day of the year
Dec 31: 365th day of the year
Therefore, in 2017, we have 365 − 155 = 210 days
Apr 3: 93rd day of the year
Therefore, in 2018 we have 93 days
Total days in the given period = 210 + 93 = 303 days
303
I = Prt = (4225) (0.072) ( ) = $252.527671... = $252.53
365
Therefore, the repayment amount to be paid = 4225 + 252.53 = $4477.53 and out of this amount, the
interest is $252.53.
Review Exercise 8, Solution 5:

P = S (1 + rt) −1
182 -1
= 20000 (1 + 0.0525 × )
365

= $19,489.79456...

= $19,489.79

Therefore, the price of the Treasury bill on the issue date was $19,489.79.
Review Exercise 8, Solution 7:
Let ‘r’ be the monthly rate of interest Merilyn was charging the employee.
S = P (1 + rt)
4600 = 4000 (1 + r × 8)

Last updated: June 18.2017

 1.15 = 1 + 8r
Therefore, 8r = 0.15
0.15
r= = 0.225
 8 
 
 12 
The bank offers an interest 1.5% less than that offered by her to her employee.
The interest rate offered by the bank = 0.22 − 0.015 = 0.21
8
Therefore, the amount she would have had in her bank S = 4000 (1 + 0.21 × ) = $4560
12
Review Exercise 8, Solution 9:
Let the amount he would have to pay at the end of 2 years to clear the balance be ‘x’

9
In 9 months, the balance is: 10,000 (1 + 0.04 × ) = $10,300
12
A payment of $2500 is made in 9 months:
10,300 – 2500 = $7800
6
In 15 months, the balance is: 7800 (1+ 0.04 × ) = $7956
12
A payment of $5000 is made in 9 months:
7956 – 5000 = $2956

9
X = 2956(1+ 0.04 × )
12
X = $3044.68
Therefore, an amount of $3044.68 paid at the end of two years will settle the loan.
Review Exercise 8, Solution 11:
Let the single payment Nikkita would make in 9 months that would settle both payments be ‘x’
Let S1 be the equivalent value on the focal date of $3500.00 (paid in 6 months). Therefore, t1 = 9 − 6 = 3
months
Let P2 be the equivalent value on the focal date of $2500.00 (paid in 11 months). Therefore, t2 = 11 − 9 = 2
months
We have S1 + P2 = x
P1 (1 + rt1) + S2 (1 + rt2)−1 = x
3500 (1 + 0.0075 × 3) + 2500 (1 + 0.0075 × 2)-1 = x
3578.75 + 2463.054187... = x

Last updated: June 18.2017

 We get x = $6041.804187... = $6041.80
Therefore, a single payment of $6041.80 in 9 months will settle both payments.
Review Exercise 8, Solution 13:
Since it is an interest bearing note, the principal is the face value.
First calculate the maturity value of the note.
180
S = 7500 (1 + 0.0625 × )
365
= $7731.164384...
Now since it is sold after 70 days.
110
The time remaining is 180 − 70 = 110 days = years
365

P = S (1 + rt) -1
110 -1
=7731.164384... (1 + 0.09 × )
365

= 7527.007202… = $7527.01
Therefore, the proceeds of the note are $7527.01.
Review Exercise 8, Solution 15:
Since it is a non-interest bearing note, the maturity value is 6 months (0.5 years) from the date of issue and
is the face value of the note.
Using the days table:
Aug 8: 220th day of the year
Oct 30: 303rd day of the year
Difference = 303 − 220 = 83 days
83
Now since it is sold in 83 days (i.e. years).
365
The term of the note is six months. Six months from August 8, 2017 is February 8, 2017.
Aug 8: 220th day of the year
Feb 8: 39th day of the year
The number of day is: (365 – 220) + 39 = 184 days
The time remaining is 184 – 83 = 101

P = S (1 + rt)-1

101 -1
= 1750 (1 + 0.0675 × )
365

Last updated: June 18.2017

 = $1717.912686...

= $1717.91
Therefore, the proceeds of the note are $1717.91.
Review Exercise 8, Solution 17:
Let the size of the each of the two equal payments be ‘x’
Let P1 be the equivalent value on the focal date of ‘x’ paid in 5 months
Let P2 be the equivalent value on the focal date of ‘x’ paid in 16 months
Assume that Roanna borrowed $2500 now, that is, on the focal date.
Therefore, we have P1 + P2 = 2500
Therefore, S1 (1 + rt1)−1 + S2 (1 + rt2)-1 = 2500

5 -1 16 -1
x (1 + 0.07 × ) + x (1 + 0.07 × ) = 2500
12 12
0.971659... x + 0.914634... x = 2500
1.886294... x = 2500
Therefore, x = $1325.350085... = $1325.35
Therefore, the two equal payments are $1325.35 each will settle the loan.
Review Exercise 8, Solution 19:
Let S be the total amount repaid and S1 and S2 the amounts repaid after 5 and 10 months respectively.
10 5
12,800(1 + 0.065× ) =2 x + x (1 + 0.065× )
12 12
13,493.333333… = 2 x + 1.027083… x
S1= $4457.54
S2=$8915.08
Therefore, the amount of payment in five months is $4457.54 and the payment in ten months is $8915.08.
Review Exercise 8, Solution 21:
8 6
15,000(1 + 0.0475×1) = 10,000(1 + 0.0475 × ) + x (1 + 0.0475× )+ x
12 12
15,712.50 = 10,316.666667… + 1.02375… x + x
5395.833333… = 2.02375… x
x = 2666.254890… = $2666.25
Therefore, the size of the equal payments is $2666.25.
Exercise 8.3, Solution 23:

Last updated: June 18.2017

To compute for the interest of the investment in 9 months, find the difference of the maturity value after 6
months and 15 months,
$4,725 - $4,590 = $135
Then, for 15 months, the interest will be…
$135/9 months = $15
$15 x 15 months = $225
The amount invested is,
$4,725 – $225 = $4,500
I 22 5
r= = = 0.12 ... = 12 % p.a.
Pt 4,500  1.42
Therefore the amount invested is $4,500 and the interest rate is 12 % p.a.

Last updated: June 18.2017