Question

Alex borrowed $15,000 on March 25, 2020 and signed a 6-month promissory note with a simple...

Alex borrowed $15,000 on March 25, 2020 and signed a 6-month promissory note with a simple interest rate of 9%. Today (May 8th), the note is sold to a bank for $15,201.30. What simple interest rate, r, did the bank use to determine the proceeds?

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Answer #1

Sol :

Present value (PV) = $15,000

Future value (FV) = $15,201.30

Number of days in which the note is sold to bank =  March 25 to May 8 = 44 days

Interest by bank = $15,201.30 - $15,000 = $201.30

Simple interest rate bank use to determine the proceeds is as follows,

Interest by bank = PV x rate of interest x (44 / 365)

$201.30 = $15,000 x rate of interest x (44 / 365)

Rate of interest = $201.30 / $15,000 x (365 / 44)

Rate of interest = 0.111325 or 11.13%

Therefore simple interest rate bank use to determine the proceeds is 11.13%

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