1. On June 29, 2009 an investment manager purchased a $10,000 T-bill. The note\'
ID: 2771374 • Letter: 1
Question
1. On June 29, 2009 an investment manager purchased a $10,000 T-bill. The note's maturity date was 9/30/09 and the simple discount rate was 2.93%. How much did she pay for the note? (20 points)
3. An insurance agent has just sold a large policy and will be paid a commission of $5,200 in 30 days. A business associate offers to give him cash right now in exchange for the commission check when it arrives, for a fee of 3%. (a) How much would the agent receive if he takes this deal? (10 points) (b) What simple interest rate would this be equivalent to paying?
4. The Titan Siren Company is due to receive a payment of $475,000 in 27 days. A finance company offers to buy this payment today, using a simple discount rate of 10% What simple interest rate would this be equivalent to? (20 points)
5. Harry borowed $5,000 from Ron for 200 days at a simple interest rate of 10.95%. Then, 150 days later, Ron sold the note to Hermione, using a simple discount rate of 7.3%. (Each of the following parts are worth 5 points each.)
a) How much did Hermione pay for the note?
b) What rate of simple interest did Ron earn on this deal?
c) What rate of simple interest did Hermione earn from this deal? (Assume that she holds onto the note until maturity.)
d) What rate of simple interest did Harry pay?
When answering if you could fully explain answers and not just put the answer that would be great, thank you. I use formulas such as I=PRT and D=MdT
Explanation / Answer
1. D= MdT
10,000-Price = 10000*2.54%*270/365
Price= $9,812109
3.a)5200-0.03*5200 =$5044
b) SI = 3% *12 = 36%
4.D = Md
D=(475,000)(.10)
D = $47,500
The value of the payment would be $427,500.00
475000 / (1 + .10/365 * 27) ; assuming 1 year = 365 days
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