Exam 11: Promissory Notes, Simple Discount Notes, and the Discount Process

On March 12, Bill Jones accepted a $12,000 note in granting a time extension of a bill for goods purchased by Ron Prentice. Terms of the note were 13% for 90 days. On April 24, Bill could no longer wait for the money and discounted the note at Able Bank at a discount rate of 14%. The proceeds to Bill are:

The payee of a promissory note is extending the credit.

Lisa Davidson signed a $12,000 note from Springfield National Bank at a 5% discount for 222 days (assume 360 days in a year). Calculate the bank discount.

Use ordinary interest: Rate of Maturity Date Note Date Note Discount Principal Interest Time Value Made Discounted Period Proceeds \ 70,000 11\% 90 days A Mar 10 April 15 B C Note to be discounted at 10%

Match the following terms with their definitions. -Bank discount

The maturity date of a promissory note represents when only the principal is due.

Jill Corporation accepted a $16,000 note on Aug. 12. Terms of the note were 13% for 100 days. Jill discounted the note on September 28, at the Reno Bank at 14%. The proceeds to Jill would be:

The effective rate of a $25,000 non-interest-bearing simple discount 10%, 90-day note is (round to the nearest hundredth of a percent):

Maturity value of a non-interest-bearing note is:

Jill Jones borrowed $18,000 for 180 days from Sovereign Bank. The bank discounts the note at 8%. The effective interest rate to the nearest hundredth percent is:

Match the following terms with their definitions. -Maturity value

A $15,000, 6%, 50-day note dated November 8, is discounted at 5% on November 28. The proceeds of the note would be:

Ray Furniture wants to buy a dining room set for $7,000 with a 20% trade discount. Ray needs the cash to pay the bill and is considering discounting a 90-day note dated May 12, with a maturity value of $6,500 at Hunt Bank at a discount rate of 13% on June 5. The bank discount if Ray discounts the note is:

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

Compute bank discount using (A)ordinary interest, (B)proceeds, and (C)effective interest rate to nearest hundredth. Do not round denominator in your calculation. Face Value Discount Rate Time in Days \ 12,000 13\% 120

Juan-Solez, a prominent painter, takes out a simple discount note for one year from River National Bank for $5,000. The annual rate of interest is 8%. What is the amount of: A. Bank discount B. Proceeds C. Effective rate of interest (to nearest tenth percent)

Lines of credit provide companies with additional financing that is immediately available to them.

Match the following terms with their definitions. -Maturity date

The face value of a simple discount note is $12,000. The discount is 6½% for 90 days. Use ordinary interest. Calculate the following: A. Amount of interest charged for each note B. Amount borrower would receive C. Amount payee would receive at maturity D. Effective rate (to the nearest tenth percent)

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