You have just purchased merchandise for $1400. However , the vendor will give you a 3% discount , IF you pay the requested amount ( 97% of $1400) within 30 days ( let’s call that ONE MONTH ) . SO, you go to your bank and request a loan for $1358.You will return the $1358 to the bank, WITH interest, at the SIMPLE INTEREST rate of 12%, in exactly 30 days time. Please determine your overall rate of return on your investment, for that one month time span.


A couple wins 10,000 in a lottery and wishes to invest it at 10% simple interest to produce equal amount of money for each of their 2 children, now ages 11 and 16 when the children reach of age 21. What is the amount each child will get? Put the focal date at 10 years from now.


Debts of 500 and 1500 are due in 3 and 6 months, respectively. What cash settlement will settle these debts if it is based on an interest rate 10% and the time of the cash settlement is used the focal date.
NOTE; The phrase “CASH SETTLEMENT” means paying cash IMMEDIATELY. Please consider problem (2B) as a THREE part problem:
i. Answer the question as listed in the text book.
ii. Find the NET PRESENT WORTH (NPW) of the investment at r = 10%, if the cash settlement is to be $1850.
iii. What does the SIGN of your response to (ii) suggest about the INTERNAL RATE OF RETURN (IRR) of the overall investment, Compared to 10% ? BRIEFLY EXPLAIN WHY.

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Ten years from now, the investment will amount to 10,000+10*10%*10,000=20,000. Hence in 10 years time, each of the children will get 10,000....

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