# Interest Rates Problems With Sample Solutions

1. Determine the month-end payment for a \$200,000, 10-year loan with an interest rate of 12
percent, compounded monthly. (Assume there is no down payment)

• Calculate the outstanding loan amount after 18 months.
• Redo part A,assuming it is a mortgage loan with monthly payments.
2. You expect your newly born child to attend college in 18 years. You have \$12,000 to set aside for that purpose. You also expect that the total cost of college education to be \$100,000 by that time. Calculate the interest rate at which you have to invest today to achieve your goal.
3. You want to buy a new sports coupe and need \$30,000 loan and the finance company affiliated with the dealership is offering 6.9% APR loan and the loan calls for 60 monthly payments. What will be your monthly payments and also the effective interest rate on the loan?
4. The current exchange rate between the United States and Britan is \$1.825 per pound. The 6-month forward rate between the British pound and the U.S. dollar is \$1.79 per pound. What is the percentage difference between current 6-month U.S. and British interest rates?
5. Find the interest rate implicit in a loan of \$100,000 that the borrower discharges with two annual installments of \$55,307 each, paid at the end of each of the next two years.
Required: Calculations of present and future value (or single payments and for annuities, to make the exercises more realistic, we do not give specific guidance with each individual exercise.;
6. On July 1, 200X you enter into a note payable of \$200,000 with a 5% annual interest rate. Your interest expense for 200X will be?
7. Post Company issues a 6 year, 6%, \$200,000 bond at par on July 31. The journal entry would be:
8. Post Company issues a 6 year, 6%, \$200,000 bond at par on July 31. How much interest will be paid over the life of the bond?
9. A company has current assets of \$500,000, net income of \$10,000, current liabilities of 250,000 and equity of \$250,000. What is the current ratio?
10. If a company has gross salaries of \$12,000 and it withholds \$1,800 for income taxes and \$800 for FICA taxes, the journal entry to record the employee s pay should include:
11. A 6.25% semi annual coupon bond with 22 years left to maturity is priced to offer a 5.5% yield to maturity. You believe that in one year, the yield to maturity will be 6%. If this occurs please compute your total return of the bond in dollars and in percent for this one year holding period. Assume a \$1000 face value. Please explain how you came to the answer