Question

10.  Jack has a friend, Mike, who recently sold his car to another friend, Sally. Sally agreed to pay Mike $10,750 in 9 months 4 months ago and signed a note to that effect. Unfortunately, Mike needs some cash now. Jack agrees to take the note off of Mike’s hands for $10,300. What annual simple interest rate will Jack earn when Sally pays him at the end of the time period?

11.Kari wants to save for her kid’s college education. She expects to need $75,000 in 17 years. If she can afford to save $225 per month, what interest rate must she earn each month to be able to make her goal?

12. Larry received an inheritance of $25,000 he plans to invest in an account that pays interest compounded monthly. What interest rate must the money earn to have $1,000,000 in the bank in bank when he retires in 40 years?

Answer 1

Q10: Price of the note= 10300

Amount receivable after 5 months from now= 10750

Interest = 10750-10300 = 450

Rate= Interest/Price * 12/5

=450/10300 * 12/5

= 10.49%

Q11: We use Excel rate function to get the monthly rate. Nper=17*12; PMT=-225 and FV=75000

Rate per month

0.4505%

Q12: We use Excel rate function to get the monthly rate. Nper=40*12; PMT=0, PV=-25000 and FV=1000000

Rate per month	0.7715%
Annual rate	9.2577%

Workings for Q 11 and 12:

We use Excel rate function to get the monthly rate. Annual rate= Monthly rate*12