Question

Mark signs a note promising to pay $925 in 4 years with simple interest at 11.5%. Then, 9 months before the note comes due, the holder of the note sells it to a local bank which discounts the note based on a bank discount rate of 16.5%. (a) What did the bank pay the holder of the note when it was sold 9 months before maturity? $ (b) What simple interest rate did the holder of the note earn for the time the note was held? (Enter your answer as a percent. If your answer is less than 0, type 9999) %

Answer 1

	Note amount	925.00
	Rate of Interest	11.5 pa
	Period	4 years
	Interest due	425.50
	Note amount after 4 years	1,350.50	A
	Discount factor @ 16.5% for 9 months	0.891776	B
(i)	Amount bank paid	1,204.34	A*B
(ii)	Interest (%) earned by the holder-
	Interest earned	1,133.2-925
		279.34
	Period held	3 years 3 months
	Interest percentage	Interest/ Principal/ Period
	Simple rate of interest earned	9.29%