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1.4 Time Value of MoneyExercises 2.2 69 69- Algernon has just learned that his long-lost uncle has passed away, leaving him $120,000 in his will. He will not receive
the money, though, until his uncle’s estate is fully settled, which will take 1 year. Unfortunately, Algie could really use
some cash today to settle his gambling debts. He is able to arrange a discount note from a moderately disreputable
lender, using the money from his uncle as the maturity value, at a discount rate of 40%.
D. Rates in Disguise- Denarea will receive a $1,043.59 paycheck in 7 days. A payday lender offers to give her cash today for this check for
a fee of 1½% of the check amount. Find (a) the amount of the fee, (b) the amount she will receive, (c) the equivalent
simple discount rate, and (d) the equivalent simple interest rate. - Tom will be paid $789.95 in 10 days. A payday lender offers to give him cash today for his paycheck, taking as its fee
a discount of 1.75% plus an additional service fee of $5. Find (a) the amount of the lender’s fee, (b) the equivalent
simple discount rate, and (c) the equivalent simple interest rate. - An insurance agent has just sold a large policy and will be paid a commission of $3,279.46 in 30 days. His brother-in-
law offers to give him cash right now in exchange for his commission check for a fee of 4%. Thinking that 4% sounds
like a pretty terrifi c rate for a loan, the agent agrees. What is the actual simple discount rate he is paying in this deal?
What is the equivalent simple interest rate? - Benny runs a machine tool business. A large customer owes him a payment of $750,000 due in 16 days, but Benny
needs cash now. A fi nance company offers to give him cash now for this debt; the fee would be 1%. What is the actual
simple discount rate Benny is being offered? What is the equivalent simple interest rate?
E. Grab Bag- The Titan Siren Company is due to receive a payment of $475,000 in 27 days. A fi nance company offers to buy this
receivable today for $471,500. Find the simple discount rate being offered. Find the simple interest rate being offered. - A $10,000 T bill with 135 days to maturity is sold at a 4.44% simple discount rate. What is the equivalent simple
interest rate? - Suppose you buy a note with a $500 maturity value for $482.36. First describe the loan in terms of simple interest,
identifying (a) the principal, (b) the maturity value, (c) the amount of interest, and (d) the face value. Then describe the
loan in terms of simple discount, identifying (e) the proceeds, (f) the maturity value, (g) the amount of discount, and
(h) the face value. - An annual subscription to Unpopular Sports Weekly costs $79.95. My subscription renewal isn’t due for another
3 months, but the company offers to give me a 10% discount off the price if I renew now. If we looked at this early
payment as a loan, what would the simple interest rate be? - A $25,000 T bill with 18 days to maturity is sold with a 5.09% simple discount rate. Find the equivalent simple interest rate.
Copyright © 2008, The McGraw-Hill Companies, Inc.