Interest-Rate-Rate-of-Return-and-equivalence

Q1) An employee borrows $10,000 and must repay a total of $10,700 exactly 1 year later. Determine the interest amount and the interest rate paid.

Q2) XYZ corp. borrowed $3,500,000 from a credit union. XYZ repaid the loan after 1 year with a single payment of $3,885,000. What was the interest rate on the loan?

Q3) Bob deposited an unknown amount X today at an interest rate of 5% per year. Calculate the unknown amount X deposited if it is worth $1,000 after 1 year. Also calculate the amount of interest earned during this time period.

Q4) Pauline borrowed $900,000 from a bank. The terms of the loan were such that Pauline could pay interest only at the end of each year for up to 5 years, after which she would have to pay the entire amount due. If the interest rate on the loan was 12% per year and Pauline paid only the interest for 4 years, determine the following:

(a) The amount of each of the four interest payments

(b) The amount of the final payment at the end of year 5

Part B: Equivalence

Q5) At an interest rate of 5% per year, a $3,000 cost now is equivalent to what amount one year earlier?

Q6) A company is planning to expand its production facility. It has 2 options, which one should be selected if the interest rate is 15% per year.

Option 1: Incur a cost of $1,000,000 one year from now.

Option 2: Incur a cost of $790,000 now.

Q7) Howard wants to borrow $10,000 now and repay it after 1 year. He has 2 options, which option is best?

Option 1: Borrow $10,000 from a bank at an interest rate of 7% per year

Option 2: Borrow $10,000 from a credit union and repay $10,600 after 1 year.

Part C: Simple and Compound Interest

Q8) XYZ Welding has extra funds to invest for future expansion. If the selected investment pays simple interest, what interest rate would be required for the amount to grow from $60,000 to $90,000 in 5 years?

Q9) If a company invests $1,000,000 now into a fund, how much will the company have in 2 years, if the account grows at a compound rate of 10% per year?

Q10) A company borrowed $1.8 million at 10% per year compound interest. If the company repaid the loan in a lump sum amount after 2 years, what was: (a) the amount of the payment; and (b) the amount of interest?

 

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