someone help me with acst =\ (1 Viewer)

[boinkBOINK]

A 90-day promissory note will mature for $10,000 plus simple interest at 6% p.a. for the term of the note. After 30 days it is sold to a bank which uses a simple discount rate of 4% p.a.

1. What is the maturity value of the note?
2. Find the price paid by the bank for the note.

is this like a trick question or anything?
does it require me to convert the simple discount of the bank into simple interest? or? am i making it harder than it really is?

 

[-=«MÄLÅÇhïtÊ»=-]

um...its been a while so i dunno if im 100% correct. firstly from ur elements bit u should know that promissory notes are short term (unlike bonds) and only require simple interest or simple discount (unlike bonds where u used compound).

So wiv this ques
1) is juz the 1000 + the simple interest u earn over 90 days
2) just use the simple discount formula on ur answer in part 1) to get the value 60 days prior to maturity date. No need to convert to simple interest unless if u wanna make things harder (coz u have nuffin better to do and like to experiment around).

 

[boinkBOINK]

maybe i shoulda just waited =\
it took me 7hrs and 3mins
but it looksl ike i screwed that up

 

[redruM]

1)
i like to draw up a timeline sort of thing. like one below:

it says that it will mature for $10 000 plus simple interest.

so you can use I=Prt to find out how much interest would be accumulated.

I = 10 000 x 0.06 x 90/365
I = 147.95

therefore the p.n. will mature to S = P + I = $10 147.95.

2)
using the same timeline, you put in the point in time where you sell the p.n. to the bank. then basically you just have to find the value of the p.n. at that transaction.

get that by making that equal P, with S = 10 147.95, d = 0.04 and t = 60/365. you are just doing a mini-calculation of the whole calculation you did in part 1.

just sub into P = S(1 - dt), i got P = $10 081.22. it seems possible.
i havent really done any questions like this, except the one in the tute. what is the answer? is this from the text?

 

[boinkBOINK]

ahhh it makes sense now
it was actually for those online test things
and i really carked it up =\
how sad

 

[boinkBOINK]

hey err like whats the diff between these two?

If the interest rate is 6.5% p.a. convertible 4 times a year, find the equivalent effective annual rate of interest. (as a %, to 2 decimal places)

If the rate of interest is 5.0% p.a. effective, find the equivalent nominal rate of interest p.a. if it were payable 4 times a year. (as a %, to 2 decimal places)

 

[Grizzly]

Boink,
"If the interest rate is 6.5% p.a. convertible 4 times a year, find the equivalent effective annual rate of interest. (as a %, to 2 decimal places)"

Look here;

EDIT: Thanks Greg :>

 

[Grizzly]

When it says "x.x% p.a effective", it means J.m
i.e
( 1 + j.m / m )^m = ( 1 + j.1 /1 ) ^ 1
where m = the number of time payable per year.
Then you solve for j1 to find the "nominal rate".

But when it says, "convertable"
it means
you gotta work out the convertable rate (like, j1 has been changed to j4)
i.e
( 1 + j.4 / 4 ) ^ 4 = ( 1 + 0.05 / n ) ^ n

and solve for j.4

 

[boinkBOINK]

*thinks
so err lol
isnt the two u said the same thing?

so which one is it like if im given say 6.5% quartetly
i just do 6.5%\4?

 

[Grizzly]

( 1 + j.4 / 4 ) ^ 4 = ( 1 + 0.05 / n ) ^ n

in this case you solve for j.4 (the effective rate), because they tell you j.n
because n=is the number of times payable per year. (in your eg. u didnt say what n is)

whereas ,
( 1 + j.m / m )^m = ( 1 + j.1 /1 ) ^ 1
j.1 is the nominal rate (p.a%)
and j.m is the amount of times payable a year.
in this case you solve for j.1

 

[jlh]

np....

which question is this david?

 

[Grizzly]

ye-haw, u hit 1000 posts greg

 

[boinkBOINK]

celerrates breaking the 1000barrier

bball is grippin stuff


question liek 5-8

 

[jlh]

i'm bored...

 

[AsyLum]

rofl, thats crazy shit right there :S