68 Chapter 2 Simple Discount
- The payments exchanged by a borrower and lender are as illustrated in the timeline below:
$352.45 $363.794/4/04 7/13/04- The following promissory note:
On February 14, 2002, I borrowed $18,355.17 from The National
Bank of Northern South Dakota, and agree to pay back
$18,759.15 on February 14, 2003.
Walter W. WaltersB. Interest Rates and Discount Rates
For each of the following situations, fi nd (a) the simple interest rate and (b) the simple discount rate.
- A $10,000 face value discount note is sold for $9,393.93. The term is 300 days.
- Port Gibson Mutual Insurance Company lends $62,500 to a real estate developer in exchange for a $70,000 payment
9 months later. - Mara loans her brother $15 and he pays her back $20 fourteen days later.
- Stannards Capital Investment Corp invested $576,300 to buy a note that matures in 2 years for $725,000.
C. Finding Equivalent Interest Rates
In each of the following exercises, fi nd the simple interest rate that would be equivalent to the stated simple discount
rate.
- The simple discount rate is 12%, the maturity value is $7,500, and the term is 1 year.
- A $5,000 maturity value note with a 150-day term is sold at a simple discount rate of 8.35%.
- A real estate agent knows that he will receive a commission of $4,250 from the sale of a property when the deal is
completed 37 days from now. Needing cash to meet his expenses today, though, he signs a discount note at a credit
union, using his expected commission as the maturity value. The discount rate is 9.55%. - A $10,000 T bill with 73 days till maturity is sold at a 5.48% simple discount rate.