Copyright © 2008, The McGraw-Hill Companies, Inc.
Topic Key Ideas, Formulas, and Techniques Examples
Measuring Actual Interest
Earned, pp. 72–7 3- The simple interest rate earned by each party
to a promissory note transaction can be
determined. - Draw a time line that refl ects what happened
from a given party’s point of view. - Substitute the information from that time line
into the simple interest formula to solve for the
rate that party actually earned.
For the scenario of Example
2 .3.1 (see above), calculate
the simple interest rate that
John earns, the rate that
Ringo earns, and the rate that
Paul pays. (Example 2.3.2)Negative Interest Rates, p. 7 4 • When someone loses money on a deal, we can
consider this as earning negative interest, and
express the investment result with a negative
interest rate.Tinker loaned Evers $997.52
and 74 days later he sold the
note to Chance for $993.90.
What simple interest rate did
Tinker earn? (Example 2.3.4)Secondary Sales with Interest
Rates (Optional), p. 7 6- A secondary sale may be determined by using
simple interest rather than simple discount - Substitute the interest rate, term, and maturity
value into PPRTM - Use algebraic steps to solve for P
A $10,000 maturity value note
with 5 months remaining term
is sold at a 6% simple interest
rate. Find the selling price.
(See page 000.)Chapter 2 Summary 81