Questions 1, 2, 3 on “Simple” Interest, not compounded
Questions 4 & 5 on Profit and Loss
Question 6 on Prorations
Question 7 on Capitalization
Please refer to the formulas and examples in the links below and in the “Resources” section below the Modules.
This math problems are no more difficult than what you had in 9th grade Algebra (if you remember) ! And, yes, you may certainly use a calculator and consult with family or friends, have fun.
Simple Interest
- An investor held a 5-year Second Trust Deed (mortgage) which was recently paid in full at 7.2 % interest per annum. If the total interest paid by the borrower was $14,130, what was the original loan amount ?
- In connection with a personal loan, a borrower paid $100 interest during the first quarter, if the loan amount is $5,000, what is the interest rate ?
- Albert borrowed $3,800 and signed a straight note with an interest rate of 6.5 % per annum (per year). If he paid $370.50 interest during the life of the loan, how long was the term of the loan ?
Profit & Loss
- Mr. Jones realized a loss of 8 % when he sold his vacant land in the desert for $142,600. What did he originally pay for the property ? Read the Profit & Loss examples.
- A 2-bedroom condo gained a profit of 12 % when it sold for $385,000. What was the original price paid for the condo ? Read the Profit & Loss examples.
Proration
- Seller sold her 8-unit apartment building to a buyer and the deal closed on the 13th of the month. She already collected $13,800 in rent, plus $1,725 in back rent for the previous month from a tenant. How much does the seller owe the buyer at closing for the prorated rental payments ?
Capitalization (is the method of converting income into value). Also note: when the cap rate goes up, the value of the property goes down.
- A property is valued at $600,000 using a capitalization rate of 8 %. If the appraiser happened to use a capitalization rate of 7.5 % instead, what would the new estimated value of the property ? Use the capitalization formula below. Important hint: to get this correct, you need to figure out the annual income first (on the 8% rate).