Contemporary Mathematics for Business and Consumers, Third Edition

Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 1
Chapter 10 - Section II - Exercise 22

Steven Teeter took out a loan for $3,500 at the Fortune Bank for 270 days. If the bank
uses the ordinary interest method, what rate of interest was charged if the amount
of interest was $269? Round your answer to the nearest tenth percent.

Interest = $269.00

Principal = $3,500.00

Time (days) = 270

Rate = 10.2% 0.102476

Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 2
Chapter 10 - Section I - Exercise 35

What is the maturity value of a $60,000 loan, for 100 days, at 12.2% interest, using
the exact interest method?

Principal = $60,000.00

Rate = 12.2%

Time (days) = 100

Maturity value = $62,005.48

Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 3
Chapter 10 - Section I - Exercise 38

You are the accounting manager for Eurostyle, Inc., a manufacturer of men's and
women's clothing. The company needs to borrow $1,800,000 for 90 days in order to
purchase a large quantity of material at "closeout" prices. The interest rate for such
loans at your bank, Century Bank, is 11% using ordinary interest.

a. What is the amount of interest on this loan?

Principal = $1,800,000.00

Rate = 11.0%

Time (days) = 90

Ordinary Interest= $49,500.00

b. After making a few "shopping" calls, you find that Metro Bank will lend at 11%,
using exact interest. What is the amount of interest on this offer?

Principal = $1,800,000.00

Rate = 11.0%

Time (days) = 90

Exact Interest= $48,821.92

c. In order to keep your business, Century bank has counteroffered with a loan at
10.5%, using ordinary interest. What is the amount of interest on this offer?

Principal = $1,800,000.00

Rate = 10.5%

Time (days) = 90

Ordinary Interest= $47,250.00

d. (Challenge) If Metro wants to beat Century's last offer (part c) by charging $1,250
less interest, what rate, rounded to hundredths, must they quote, using exact interest?
 Interest = $1,250.00

Principal = $1,800,000.00

Time (days) = 90

Rate = 0.28%
Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 3
Chapter 10 - Section II - Exercise 21

Williamson Motors, a Chevrolet dealership, borrowed $225,000 on April 16 to

purchase a shipment of new cars. The interest rate was 9.3% using the ordinary
interest method. The amount of interest was $9,600.

a. For how many days was the loan?

Note: Use Excel's Roundup function when you calculate the number of days.

Interest = $9,600.00

Principal = $225,000.00

Rate = 9.30%

Time (days) = 165 165.1613

b. What was the maturity date of the loan?

Maturity Date= September 28

Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 2
Chapter 10 - Section II - Exercise 23

Kathleen Murphrey borrowed money to buy a car at 13.5% simple interest from her
credit union. If the loan was repaid in 2 years and the amount of interest was $2,700,
how much did Kathleen borrow?

Interest = $2,700.00

Rate = 13.5%

Time (years) = 2

Principal = $10,000.00 10000

Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 1
Chapter 10 - Section III - Exercise 21

Berkshire Manufacturing received a $40,000 promissory note at 12% simple interest

for 95 days from one of its customers. After 70 days, Berkshire discounted the note
at the Weston Hills Bank at a discount rate of 15%. The note was made on
September 12.

a. What is the maturity date of the note?

Date note made = 12-Sep

Time (days) = 95

Maturity date = 16-Dec

b. What is the maturity value of the note?

Face value = $40,000.00

Rate = 12%

Time (days) = 95

Maturity value = $41,266.67

c. What is the discount date of the note?

Date note made = 12-Sep

Discount period (days) = 70

Discount date = 21-Nov

d. What proceeds will Berkshire receive after discounting the note?

Discount rate = 15%

Days remaining = 25

Bank discount = $429.86

Proceeds = $40,836.81
Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 3
Chapter 10 - Assessment Test - Exercise 31

Ann Veith borrowed $16,000 at 14% ordinary interest, for 88 days. On day 30
of the loan, she made a partial payment of $7,000. What is the new maturity value
of the loan?

Face value = $16,000.00 Principal = $16,000.00

Rate = 14% Rate = 14.0%

Time (days) = 88 Time (days) = 30

Maturity value = $16,547.56 Ordinary Interest= $186.67

6,813.33333333333
 Face value = $9,186.67

Rate = 14%

Time (days) = 58

Maturity value = $9,393.88

Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 2
Chapter 10 - Assessment Test - Exercise 33

Ransford Morgan signed a $30,000 sumple discount promissory note at the Plantation
Bank. The discount rate was 13% ordinary interest, and the note was made on
August 9 for 95 days.

a. What proceeds will Ransford receive on the note?

Face Value = $30,000.00

Rate = 13.0%

Time (days) = 95

Bank discount = $1,029.17

Proceeds = $28,970.83

b. What is the maturity date of the loan?

Date loan was made = 9-Aug

Time (days) = 95

Maturity date = 12-Nov

c. What is the effective rate of interest of the note? Round the answer to the nearest
hundredth percent.

Effective Rate = 13.46%

Contemporary Mathematics for Business and Consumers, Third Edition
Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 3
Chapter 10 - Assessment Test - Exercise 35

You are the accountant for Leather City, a retail furniture store. Recently, an order of
sofas and chairs was received from a manufacturer with terms of 3/5, n/45. The order
amounted to $230,000, and Leather City can borrow money at 13% ordinary interest.

a. How much can be saved by borrowing the funds for 30 days to take advantage of
the cash discount? (Remember, Leather City only has to borrow the net amount due,
after the cash discount is taken.)

Principal = $223,100.00

Rate = 13.0%

Time (days) = 30

Ordinary Interest= $2,416.92

Discount $6,900.00
Savings $4,483.08

b. What would you recommend?

To borrow funds and take advantage of the discount due to net savings of $4483.08