3-8
TIME VALUE OF MONEY
ANSWER KEY
4.
If you borrow $350,000 for two years and have to pay back $413,000 in two years,
what is the simple interest rate you are being charged for the loan per year?
9.0%
R = I / (P x T)
R = $63,000 / ($350,000 x 2)
R = 0.09 or 9.0%
5.
If the rate is 12% per annum (p.a.), what is the simple interest accrued over a 20 day
period within the same month on a $100 investment?
$0.67
I = P x R x (days/360)
I = $100 x 0.12 x (20/360)
I = $0.67
6.
If the rate is 7.5% p.a. on a $1,000 investment, what is the simple interest accrued
over the period 13/08/91 to 20/09/91 (dd/mm/yy)?
$7.92
There are 38 days from Aug. 13,1991 to Sep. 20, 1991.
I = P x R x (days/360)
I = $1,000 x 0.075 x (38/360)
I = $7.92