A promissory note

Has a fixed time

A simple discount note results in

Interest deducted in advance

A promissory note

Has a fixed time

A simple discount note results in

Interest deducted in advance

The effective rate of a $30,000 non-interest-bearing simple discount 5%, 60-day note is

5.04%

[250/(29,750x(60/360))]

The effective rate of a $25,000 non-interest-bearing simple discount 10%, 90-day note is

10.26%

[Step 1: 25000x.1x(90/360)=625

Step2: 25000-625= 24375

Step 3: 625/24375x(90/360)=10.26]

In discounting an interest-bearing note, the discount period represents

Number of days from date of discount to date of maturity

In calculating the bank discount when discounting an interest-bearing note, which one of the following is
not used in the calculation?

A. Principal proceeds

B. Maturity value

C. Bank discount rate

D. Discount period

E. None of these

A. Principal proceeds
A $7,000, 4%, 120-day note dated March 20, is discounted on July 15. Assuming a 3% discount rate, the
bank discount is

$1.77

[7000x.04x(120/360)= 93.33

7093.33x.03x(3/360)=1.77)

note: 196 (July days)- 79 (March days)= 117. 120 days -117=3 days!]

A $15,000, 11%, 120-day note dated Sept. 3, is discounted on Nov. 11. Assuming a bank discount rate of
9%, the proceeds would be:

$15,351.74

[15000x.11x(120/360)=550

15550x.09x51/360=198.2625

15550-198.2625=15351.74

Note: Nov days 315 - Sep days 246= 69. 120 days -69=51]

A $25,000, 15%, 80-day note dated November 5, is discounted at National Bank on January 5. The
discount period is:

19 days

(80 day note dated November 5 means the bond will mature after 80 days i.e. bond will mature on 24
January.

Now since it is discounted on January 5, the discount period is 24-5 = 19 days.)

J. Ryan discounts an 80-day note for $15,000 at 12%. The bank discount is (assume ordinary interest)

$400