Hey can someone help me with this financial math question.

Oct 2013
Suppose you lent $5000 to friend 1 for 18 months at an annual simple interest rate of 9%. After 1 year you need money for an emergency and decide to sell the note to friend 2.

If your agreement with friend 2 means she earns simple interest at an annual rate of 12%, how much did friend 2 pay you for the note?



MHF Helper
Sep 2012
Hey mathgains.

Hint: The first thing you need to do is write the formula for a bond price at a certain time given simple interest. Simple interest doesn't compound and increases linearly not exponentially. A linear function is y = a + bx for some numbers a and b. What is the formula for a bond price with an interest rate per term, and number of terms?