I.

Simple Interest Problems

Simple Interest Formulas

-1 I
I=Cin C = M (1 + in) M = C (1 + in) n=
Yes

I=M-C M=C+I

interest

1. Calculate the simple commercial interest of:

$2,500 for 8 months at 8%.

$2,500
n= 8 months I= (2,500) (0.08) (8/12)= $133.33
i = 0.08

$60,000 for 63 days at 9%

$60,000
n= 63 days I = (60,000) (0.09) (63/360) = $945
i = 0.09

$12,000 for 3 months at 81/2%

$12,000
n = 3 months I = (12,000) (0.085) (3/12) = $255
i= 0.085

$15,000 at 10% for the time elapsed between April 4 and September 18 of the
same year.
$15,000
n= 164 days September 18 = 258 days
164 días
i= 0.10 April 4 = 94 days

I = (15,000) (0.10) (164/360) = $683.33

Calculate the simple commercial interest of:

$5,000 for 3 years, 2 months, and 20 days at 0.75%

NOTE:monthly
note that in this exercise the rate
$5,000 is expressed in months so it must
i = 0.0075 to transform the time also into months.
n= 3 years, 2 months, and 20 days
n = (3 years x 12 months) + 2 months + (20 days/1 month = 30 days) = 38.666666666 months

$1,450

$8,000 for 6 months and 15 days at 1.5% monthly

$8,000
I = (8,000) (0.015) (7.5) = $900
i = 0.015
n = 7 months + (15 days/30 days) = 7.5 months

2. A gentleman $2,500.20 for a promissory note of $2,400 signed on April 10, 1996 with an interest rate
of interest of 41/2%. On what date did you pay it?
Data Solution
$2,400
$2,500.20 I= 2,500.20-2,400=100.20
i= 0.045
100.2
I=? n=
(2,400)(0.045)

11 months and 3 days = 333 days

April 10
360-100= 260
333-260=73

Response: March 13, 1997

An investor received a promissory note worth $120,000 at an interest rate of 8% on July 15.
with a maturity of 150 days. On October 20 of the same year, he offers it to another investor.
What does he want to earn 10%. How much does the first investor receive for the promissory note?
Data Solution
$120,000.00 M= 120,000 [1+0.08(150/360)]= $124,000
n = 150 days
i18% C2= 124,000 [1+0.10(55/360)]-1$122,134.06
i2=10%

4. A person must pay $14,000 in 3 months with an 8% interest rate. If the promissory note has
as a penalty clause that in case of default, 10% will be charged for the time that exceeds the
fixed term what amount does the debtor pay 70 days after the due date?

M= 14,000 [1+0.08(3/12)]= $14,280 maturity value

M= 14,280 [1+0.10(70/360)]= $14,557.67 response

A person owes $20,000 due in 3 months and $16,000 due in 8.

months. It proposes to pay its debt through two equal payments due in 6 months and
one year, respectively. Determine the value of the new promissory notes at 8% yield.
(take it as a focal date within a year)

M = 14,000 [1 + 0.08(3/12)] = $14,280 maturity value

$14,557.67

A person owes $20,000 due in 3 months and $16,000 due in 8.

months. Proposes to pay his debt through two equal payments due in 6 months and
one year, respectively. Determine the value of the new promissory notes at 8% yield
(take it as a reference date within a year)
 Solution
M1$21,066.67 Payments = 2.04X

M2= 16,000 [1+0.08(3/12)]= $16,320 Debt

$37,386.67 37,386.67 = 2.04X
P1= X [1+0.08(6/12)]= 1.04X Value of the new promissory notes $18,326.8 each
P2= X
Payments1+P2
Note: in this problem, as in all similar ones, the values must be taken of the
debts as of the focal date, in this case 12 months in order to carry out operations on
these values.

II. Discount Problems

Formulas for Rational Discount

Dr = M - C C = M (1 + dn)-1 M=C (1+dn)

The formulas are the same as those of simple interest; here are their equivalents:
i=d discount rate
I=D discount
C = capital, present value
amount, final value

Bank or Commercial Discount Formulas

D=Mdn C = M (1 - dn) C=M-D M=C+D

1. Determine the net value of the promissory notes, discounted at a bank at the rates and dates.
indicated below:

$20,000 discounted at 10% 45 days before its maturity.

$20,000
10% C= 20,000 [1-(0.10) (45/360)]= $19,750
n= 45 days

$18,000 discounted at 9% 2 months before its maturity.

$18,000
9% C= 18,000 [1-(0.09) (2/12)]= $17,730
n = 2 months

$14,000 discounted at 8% on June 15, with a due date of the 18th.

September of the same year.
M=$14,000
C=14,000 [1-(0.08) (93/360)]= $13,710.67
d = 8%
n= 93 days

$10,000 discounted at 10% on November 20, if its due date is for the
February 14 of the following year.
M= $10,000
d = 10% C=10,000 [1-(0.10) (84/360)]= $9,766.67
n= 84 days

2. Someone sells a property for which they receive the following values on July 9 of a certain year.
year
$20,000 in cash.
b. A promissory note for $20,000 maturing on October 9 of the same year.
c. A promissory note for $30,000 due on December 9 of the same year.
If the bank discount rate in the area is 9%, calculate the real value of the
sale.

$20,000 in cash
$20,000
d = 9% C=20,000 [1-(0.09) (90/360)]= $19,550
n = 90 days
$30,000
d=9% C=30,000 [1-(0.09) (150/360)]= $28,875
n = 150 days

$68,425
 A promissory note of $10,000 is discounted at 10% and $9,789 is received from the bank. Calculate the date.
maturity of the promissory note.

D 211
n= n= 0.215548064
Cd (9789) (0.10)
x 12
2.586576769
-2
The promissory note was paid 2 months and 17 days. 0.586576769
before its expiration date. x 30
17.59730307
-17
0.59730307

4. The Ganadero Bank discounts a promissory note for $80,000 at 10% 90 days before its maturity.
maturity 15 days later does a rediscount at another bank at the rate of 9%. Calculate
the utility of the Livestock Bank.
$80,000
d=10% C=80,000 [1-(0.10) (90/360)= $78,000
n = 90 days

$80,000
d=9% C=80,000 [1-(0.09) (75/360)]= $78,500
n = 75 days

Utility $78,500 - $78,000 = $500 answer

5. What real discount rate was applied to a document with a nominal value of $700, if it was
discounted 60 days before its maturity and received $666.67?

33.33
i= = 0.2999685
(666.67)(60/360)
 6. What is the nominal value of a promissory note for which $146.52 was received, if it was discounted?
commercially at a rate of 49%, 85 days before its maturity?

146.52=M [1-(0.49)(85/360)]
$165.68

III. Transformation of Rates

Formulas

1/m
j = m [(1 + j2/m2) -1] j=m [(M/C)1/mn

j1=m1(1+j2/m2)m /m2 -1]

1
j2=m2[(1+j1/m1)m /m1-12

i= [(1+j/m)m-1]

From an 18% effective quarterly rate, find the nominal quarterly capitalizable rate.
monthly
j = 3 [(1 + 0.18)1/3-1]
j= 0.1701655415 17.01%

2. From a 24% nominal annual interest capitalized annually, find the nominal quarterly rate.
capitalizable semi-annually.

3. From a 12% nominal annual interest rate compounded quarterly, find the nominal semiannual rate.
capitalizable semiannually.

4. From 22% semiannual effective rate, find the bimonthly effective rate.

5. From a 30% nominal bi-monthly rate capitalizable semi-annually, find the nominal rate.
quarterly capitalizable annually.
 6. From a 52% annual nominal rate compounded annually, find the quarterly nominal rate.
capitalizable semiannually.

IV. Problems of Compound Interest

Compound interest formulas

General Formula Transformed Formula

N mn
M = C (1 + i) M = C (1 + j/m)

-N -mn
C = M (1 + i) C = M (1 + j/m)

ln M/C ln M/C
n= n=
ln(1+i) m ln (1+j/m)

1. Find the amount that needs to be placed in an account that pays 15% with
quarterly capitalization, to have $20,000.00 after 10 years.
$20,000
j= 0.15 C=20,000 (1+0.15/4)-4(10)$4,586.75
m=4

2. How many months should a $2,000 accumulation policy that pays 3% be left?
annual, to convert to $7,500?
$2,000
ln 7,500/2,000
i=3% n= = 44.71615017
ln(1+0.03)
$7,500
44 years, 8 months and 17 days

Find the future value at compound interest of $100, for 10 years:

at 5% annual interest.
M=100 (1+0.05)10$162.89

b. At 5% capitalizable monthly.
M=100 (1+0.05/12)12(10)$164.20
 c. At 5% capitalizable quarterly.

M=100 (1+0.05/4)4(10)= $164.36

d. At 5% capitalizable semi-annually.
M=100 (1+0.05/2)2(10)$163.86

4. Find the future value of $20,000 deposited at 8% compounded annually for 10 years.
years and 4 months.
$20,000 M=20,000 (1+0.08)10 plus 4=divided by 12
$44,300.52
i=0.08
10 years and 4 months

What semiannual compounded rate is equivalent to 8% compounded?

quarterly?

6. Find the nominal rate convertible semi-annually, at which $10,000 is converted into
$12,500.00 in 5 years?
$10,000
M=$12,500 j=2 [(12,500/10,000)1/(2)(10) -1]=0.045130365 4.51%
m=2
n=5

7. How many years should a $6,000 deposit be left in a savings account that
What amount accumulates at an 8% semiannual interest rate to become $10,000?
$6,000 ln 10,000/6,000
$10,000 n= = 6.512191935
2 ln (1 + 0.08 / 2)
j = 0.08
m=2 6 years, 6 months and 4 days

8. What is more convenient: Investing in a timber company that guarantees to double the
capital invested every 10 years, or deposit in a savings account that offers 6%
capitalizable quarterly?
9. An investor offered to buy a $120,000 interest-free promissory note that matures within
3 years, at a price that yields an 8% effective annual return. Calculate the offered price.
$120,000
n = 3 years C=120,000 (1+0.08)-3$95,259.87
i=0.08

10. Find the future value of $20,000 at compound interest in 10 years at a rate of 5%.
interest. Compare the result with the compounded amount at 5% convertible monthly.
 C=$20,000
n=10 years M=20,000 (1+0.05)10$32,577.89
i=0.05

$20,000
n=10 years M = 20,000 (1 + 0.05 / 12)12(10)$32,940.19

j=0.05

V. Problems of Due Annuities

Formulas for Due Annuities

Present Value Group.

C=R {[1- (1+i)-N]/i} R= C {i/[1-(1+i)-N]}

2. Future Value Group.

M=R {[(1+i)N-1]/i} R=M {i/[(1+i)N

1. Find the future value and the present value of the following ordinary annuities.
$2,000 biannual for 81/2years at 8% capitalized semi-annually.
R=$2,000 C=2,000 {[1- (1+0.04)-17$24,341.34
n=8.5 years
i=0.04 M=2,000 {[(1+0.04)17$47,395.02

$4,000 annually for 6 years at 7.3% compounded annually.

$4,000
C=4,000 {[1-(1+0.073)-6$18,890.85
n=6 years
i=0.073 M=4,000 {[(1+0.073)6$28,830.35

$200 monthly for 3 years, 4 months at 8% with monthly compounding.

$200 C=200 {[1-(1+0.006666666)-40$7,001.81
3 years and 4 months
i=0.0067 M=200 {[(1+0.006666666)40-1]/0.006666666}= $9,133.51
2. Calculate the cash value of a property sold under the following conditions
$20,000 in cash, $1,000 for monthly payments due for 2 years and 6 months, and a
last payment of $2,500 one month after the last installment was paid. For the calculation,
use 9% with monthly compounding.

i=0.0075
C=1,000 {[1-(1+0.0075)-30$26,775.08
R=$1,000
2 years and 6 months 2,500 (1+0.0075)-31$1,983.09

$48,758.17
3. What is the cash value of equipment purchased with the following plan: $14,000
initial installment, $1,600 monthly for 2 years and 6 months with a final payment of $2,500, if
load 12% with monthly compounding?

C=1,600 {[1-(1+0.01)-30$41,292.33
2,500 (1+0.01)-31$1,836.44

$57,128.77
A mine in operation has an annual production of $8,000,000 and it is estimated that it
it will be exhausted in 10 years. Find the present value of the production if the return on money
It is 8%.

R=$8,000,000
i=0.08 C=8,000,000 {[1-(1+0.08)-10$53,680,651.19
n=10 years
5. In the previous exercise, it is estimated that when the mine is exhausted, there will be recoverable assets amounting to the

value of $1,500,000. Find the present value, including the profits, if these
represents 25% of the production.

1,500,000 (1+0.08)-10= $694,790.23

53,680,651.19(0.25)= $13,420,162.8
$14,114,953.03

6. At the moment his daughter was born, a man deposited $1,500 in an account that pays 8%,
the amount is set aside for each birthday. Upon turning 12 years old, he increased his
Deposits of $3,000. Calculate the total amount she will have access to at age 18.

R1$1,500 M=1,500 {[(1+0.08)11-1]/0.08}= $24,968.23

i=0.08
M= 24,968.23 (1+0.08)7= $42,791.16
n111 years

R2$3,000
M=3,000 {[(1+0.08)7-1]/0.08}= $26,768.41
i=0.08
n27 years 1,500 (1+0.08)18$5,994.03
$75,553.60

A person deposits $100 at the end of each month into an account that pays 6% interest.
Capitalizable monthly. Calculate your balance in the account after 20 years.

$100
i=0.005 M=100 {[(1+0.005)240-1]/0.005}= $46,204.09
n=240 months
VI. Problems of Advance Annuities
Formulas for annuities in advance

Present Value Future Value

1. Calculate the cash value of a property sold with a 15-year term, with payments of
$3,000 monthly with one month in advance, if the interest rate is 12% convertible
monthly.

$3,000
N=180
 i=0.01

A person receives 3 offers for the purchase of their property:

$400,000 in cash.
$190,000 upfront and $50,000 semiannually for 21/2years.
$20,000 per quarter in advance for 3 years and a payment of $250,000 at the end
fourth year.
Which offer should be chosen if the interest rate is 8% per year?

b.

R=$50,000
i=0.04
N=5

c.

$20,000
N=12
i=0.02
250,000(1+0.08)-4$183,757.46
$399,493.42

Offer B is the most convenient.

3. What is the present value of a rent of $500 deposited at the beginning of each month,
for 15 years in a savings account that earns 9% compounded monthly?

$500
N=180
i=0.0075