Question 5 Determine the simple interest rate at which 1500

Question 5

Determine the simple interest rate at which $1,500 will grow to $1,550 in the 8 months. Round your answers to the nearest tenth of percent.

A.

The interest rate is 5%/year.

B.

The interest rate is 4.33%/year.

C.

The interest rate is 4.76%/year.

D.

The interest rate is 66.67%/year.

E.

The interest rate is 3.06%/year.

Question 6

Find the present value of $40,000 due in 4 years at the given rate of interest 8%/year compounded monthly.

A.

The present value is $28,948.67.

B.

The present value is $29,433.94.

C.

The present value is $29,076.82.

D.

The present value is $29,748.06.

Question 7

In order to help finance the purchase of a new house, the Abdullahs have decided to apply for a short-term loan (a bridge loan) in the amount of $140,000 for a term of 1 mo. If the bank charges simple interest at the rate of 12%/year, how much will the Abdullahs owe the bank at the end of the term?

A.

$141,400

B.

$140,012

C.

$146,800

D.

$144,900

Question 8

The Kwans are planning to buy a house 6 years from now. Housing experts in their area have estimated that the cost of a home will increase at a rate of 6%/year during that period. If this economic prediction holds true, how much can the Kwans expect to pay for a house that currently costs $160,000?

A.

$218,199

B.

$221,562

C.

$230,490

D.

$226,963

Question 9

The manager of a money market fund has invested $4.2 million in certificates of deposit that pay interest at the rate of 5.4%/year compounded quarterly over a period of 5 years. How much will the investment be worth at the end of 5 years?

A.

5,491,921.88

B.

3,211,990.34

C.

1,291,921.88

D.

12,024,347.20

	A.	The interest rate is 5%/year.
	B.	The interest rate is 4.33%/year.
	C.	The interest rate is 4.76%/year.
	D.	The interest rate is 66.67%/year.
	E.	The interest rate is 3.06%/year.

Solution

5.

For simple interest,

A = P(1 + rt)

or

r = ((A/P) - 1)/t

As t = 8/12 years,

r = (1550/1500-1)/(8/12) = 0.05 [answer, option A]

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