a. Bill loaned Ted $95 for a month. Ted paid $5 interest for the loan.
b. Kendra borrowed $8,350 for 5 years and paid $10,000 simple interest.
c. Nansi borrowed $14,000 for 160 days. She paid $1,500 interest for the loan.
d. Triple-Z Mattress Factory borrowed $200,000 for 3 days. It paid $500 simple interest.- If you wanted to earn $500 interest from a bank deposit of $12,500:
a. How long would it take at a simple interest rate of 8%?
b. How long would it take at a 4% simple interest rate?
c. How long would it take at 2%?
d. Make an educated guess as to how long it would take at 1%, and then check your guess by doing the calculation.
e. Make an educated guess for 16%, and then check your guess with the calculation.- Anitra’s telephone bill for the month of August came to $78.59, and was due on September 20. She paid the bill on
October 7, and because she paid it 17 days late she was subject to a late payment penalty of $5. This penalty is not
really interest, but we can think of this situation as if Anitra effectively “borrowed” the $78.59 on September 20 when
she failed to pay the bill and consider the $5 as if it were the interest paid on this “loan.” Looking at things in that way,
what was the simple interest rate Anitra paid? - Trista and Ryan opened CDs at two different banks. Both earned the same amount of interest. At Trista’s bank, the
simple interest rate was 3.66%, but at Ryan’s bank the simple interest rate was 2.75%. Who made the larger deposit?
Copyright © 2008, The McGraw-Hill Companies, Inc.
1.4 Promissory Notes
Sometimes loans are made with an informal agreement. You would probably be willing to
spot a friend $10 until next Friday on a handshake and promise to pay you back. In general,
though, it benefits both the borrower and the lender to “get it in writing.”
Doing so protects both parties by preventing an unscrupulous lender or borrower from
trying to take advantage of the other by changing the terms after the fact. But even when the
loan is made between completely trustworthy parties, even among friends or family, hav-
ing the deal spelled out in writing greatly reduces the chances of honest misunderstandings
arising and creating conflict down the road.Definition 1.4.1
A promissory note (or just note for short) is a written agreement between a borrower and
a lender that sets out the terms of a loan.To fulfill its purpose, a promissory note must contain enough information to clearly specify
the amount and timing of any payments that the loan requires. Some of the items that a note
may specify are defined below:Definitions 1.4.2
The date (or loan date) of a note is the day it is signed and the loan is made.The face value of a note is the amount of the loan for which it is written. (In every situation
we have encountered so far the face value is the same as the principal.)1.4 Promissory Notes 31