Question

1. Jimmy borrowed $23,000 from BB&T for 200 days at 8 ¾ % simple interest. Find the maturity value of the simple interest note. 2. At 120 days into the note, BB&T sold Jimmy’s note to Capital One Bank at 10%. How much did Capital One pay BB&T for the note? 3. How much interest did BB&T earn? 4. How much interest did Capital One earn? 5. Did Jimmy’s payments change during the process?

Answer 1

Q. 1)

Maturity value (A) is the aggregate of borrowing amount (P) and total simple interest amount (TI), where the interest rate (r) is (8 ¾ % = 0.0875) and the number of period is (200/365).

TI = P × r × t

     = 23,000 × 0.0875 × (200/365)

     = 1,102.74

Therefore, the function and computation are as below:

A = P + TI

    = 23,000 + 1,102.74

    = 24,102.74 (Answer)

Q. 2)

Interest for 120 days should be calculated first at 10% rate.

Interest = P × 0.10 × (120/365)

            = 23,000 × 0.10 × (120/365)

            = 756.16

Now, the payment would be the aggregate of interest and borrowing amount (P).

Payment amount = Interest + P

                            = 756.16 + 23,000

                             = 23,756.16 (Answer)

Q. 3)

B earns interest by the difference of P and payment amount

Interest earned = Payment amount – P

                        = 23,756.16 – 23,000

                        = 756.16 (Answer)

Q. 4)

C earns interest by the difference of payment amount and maturity value.

Interest earned = Maturity value – Payment amount

                        = 24,102.74 – 23,756.16

                        = 346.58 (Answer)

Q. 5)

J’s payment would not differ, he has to pay the whole 24,102.74 as per the agreement.