Question 10 Bob purchased a promissory note on January 1st , 2009 which agreed t
ID: 2637399 • Letter: Q
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Question 10 Bob purchased a promissory note on January 1st , 2009 which agreed to pay simple interest in the amount 8.0% per year. The note will mature and be paid on April 1st , 2009, 90 days later. Bob sells the note to Sally on February 12th , 2009 (i.e. 42 days after purchasing) for an amount that causes Sally?s yield rate on the note to be equivalent to simple interest of 6.3% per year. Sally cashes in the note on April 1st ,2009 for 5000.00. Note: There are 365 days in a year. What is Bob?s annual yield rate (simple interest) on the note? Give your answer as a percentage rounded to two places. Do not round your calculations, at least not too much, until the very end.Explanation / Answer
Calculation of Purchase Price of Sally:
Interest @ 6.3% Per Year = 5,000 x 6.3% = $315
Interest for 48 Days (90-42) = 315 / 90 x 48 = 41.4246576
Interest @ 8% Per Year = $ 52.6027397
Difference will be the excess Price Paid by Sally: 52.6027397 - 41.4246576 = $11.1780821
Total Purchase Price Paid by Sally = 5011.1780821
Annual Yield Rate to Bob :
Total benefit received by Bob = Interest for 42 Days + Excess Price received
Total Benefit = 46.0273972 + 11.1780821 = $57.2054793
Total Benefit for Year = 57.2054793 / 42 x 365 = $497.142855
Annual Yield Rate = 497.142855 / 5,000 x 100 = 9.942857%
Bob Annual Yield Rate = 9.942857%
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