- If you are due a tax refund of $875.39 in 50 days and your tax preparer offers to give you $850.00 now in exchange for
your refund when it arrives, what is the simple discount rate? - What would be the proceeds of the following promissory note if it is sold on April 1, 2007, at a simple discount rate of
8.21%?
The County of Conesus will pay the owner of this note $10,000
on November 15, 2007.- A $10,000 T bill with 28 days to maturity is sold with a simple discount rate of 5.32%. Find the selling price.
- A $1,000 T bill is sold for $982.56. The term is 91 days. Find the simple discount rate.
- The City of Chester Rock, experiencing dire fi nancial problems, has been promised a $17.5 million aid payment from
the state. The city desperately needs cash to pay its bills no later than May 1. Unfortunately, the state aid will not be
paid to the city until May 15. A group of investors agrees to provide the city with a cash payment on May 1 in exchange
for the May 15 state aid check. The simple discount rate for this loan will be 3.98%. How much profi t will the investors
make on this deal? How much will the city receive on May 1? - At a 4% simple discount rate, a $5,000 face value note sold for $4,905.75 on March 12. Find (a) the term and (b) the
maturity date. - On April 3, 2007 Burana Financial Investment Corp. bought a $100,000 T bill for $99,353.29. The simple discount
rate was 4.44%. When is the maturity date?
E. Additional Exercises- Life insurance policies pay their death benefi t on the death of the person insured. A viatical settlement is a business
agreement in which someone with a terminal illness may “sell” his or her insurance death benefi t to an investor at a
discount. The investor becomes the benefi ciary of the insurance policy, and receives the death benefi t when the insured
person passes away.
Suppose that Ellwood has a $150,000 life insurance policy, and has been diagnosed with a terminal illness. His doctors
have told him that he can expect to live only another 9 months. A viatical company offers to buy his death benefi t
for $117,300. Assuming that the doctors are correct about his life expectancy, what is the simple discount rate being
offered?2.2 Simple Discount vs. Simple Interest
Suppose that Lysander Office Supply borrowed $38,000 for 1 year from Van Buren Capital
Funding Corp. The maturity value of the note was $40,000. Was this loan based on simple
Copyright © 2008, The McGraw-Hill Companies, Inc.discount or simple interest?
2.2 Simple Discount vs. Simple Interest 63