Download Jacksonville Technical College received $3,445,553 in state aid on

1. Jacksonville Technical College received $3,445,553 in state aid on September 15 for the
fall academic semester. The vice-president for finance decided to invest $2,000,000 in a
2-month investment that pays 11.5% simple interest. How much interest will the college
earn on the investment? (15 points)
2000000*.115*2/12 = 38333
2. Barney Casey borrowed $40,000 from his parents for 2 years. He paid them a total of
$45,000 at the end of the 2-year term of the simple interest loan. What rate of interest did
he pay his parents? (15 points)
5000/40000*.5 = .0625 or 6.25%
3. Sarai Sherman agreed to deposit $4,450 in an account paying 16% simple interest per
year for 60 days. If she made the deposit on February 25, determine
(a) the date of the end of the term of the investment = April 26
(b) and (b) the ordinary interest Sarai will earn. 4450*.16*60/365 = 117
4. Anna Cavanaugh loaned her friend Jason $1,000 for 6 months at 6% simple interest. What is
the future value of the loan and how much finance charge will Jason pay?
(15 points)
1000*.06*.5 = 30 is the finance charge
Total amount paid = 1000+30 = 1030
5. Acton can choose from two loan offers: $12,000 at 8% simple interest for 9 months; or a
$12,000 9-month discounted loan at 7% discount. Based on the actual interest paid and the true
rate on the discounted loan, which of the two loan offers will Acton choose? Explain your
answer. (40 points)
Rate will be for first loan = .08/12*9 = 6%
Rate on second loan = 12000*.07*9/12 = 630 discount amount
Rate will be = 630/12000-630 = .0554 or 5.54%
The discounted loan should be preferred due to low cost of 5.54%
6. Envision that you have served as business manager of Media World for over 2 years. You
have noticed that for the last 12 months the business has regularly had cash assets of $20,000 or
more at the end of each month. You have found a 6-month certificate of deposit that pays 6%
compounded monthly. To obtain this rate of interest, you must invest a minimum of $2,000. You
have also found a high interest savings account that pays 3% compounded daily. Based on the
cash position of the business at this time, assume that you decide to invest $4,000.
1. Assume that you will invest the full amount in a certificate of deposit.
a. What would be the future value of the CD at the end of the investment term? (14 points)
4000*1.005^6 = 4121.51
b. How much interest would the investment earn for the period? (14 points)
4121.51-4000 = 121.51
c. What would be the effective rate of the investment?(14 points)
1.005^12-1 = .0617 or 6.17%
2. Assume that you decide to invest the $4,000 in the high-interest savings account.
a. What future value would you expect to receive at the end of 6 months? (14 points)
4000*1.0000833^180 = 4060.43
b. How much interest would the investment earn for the period? (14 points)
4060.43-4000 = 60.43
c. What would be the effective rate of the investment? (14 points)
1.00008333^360-1 = .0304 or 3.04
3. Write a recommendation to the partners justifying a short-term investment of business funds at
this time, recommending one of these investments. Include your analysis from questions 1 and 2
in your recommendation
The CD account has the limitation of withdrawing money for six months, but saving account do
not have that limit. But keeping in view the financial benefit of CD account which is on higher
side and the effective rate is also better than saving account, therefore the CD account should be
preferred.