CHAPTER 11 - SIMPLE INTEREST AND SIMPLE DISCOUNT

PROMISSORY NOTE

A LEGAL DOCUMENT PROMISING TO REPAY A LOAN

SIMPLE DISCOUNT NOTE

A LOAN MADE BY A BANK AT A SIMPLE INTEREST RATE WITH INTERST COLLECTED AT THE TIME THE LOAN IS MADE

THIRD-PARTY DISCOUNT NOTE

A NOTE THAT IS SOLD TO A THIRD PART (USUALLY A BANK) SO THAT THE ORIGINAL PAYEE GETS THE PROCEEDS IMMEDIATELY AND THE MAKER PAYS THE THIRD PARTY THE ORIGINAL AMOUNT AT MATURITY

INTEREST

AN AMOUNT PAID OR EARNED FOR THE USE OF MONEY

THIRD PARTY

AN INVESTMENT GROUP OF INDIVIDUAL THAT ASSUMES A NOTE THAT WAS MADE BETWEEN TWO OTHER PARTIES

UNDISCOUNTED NOTE

ANOTHER TERM FOR A SIMPLE INTEREST NOTE

U.S. RULE

ANY PARTIAL LOAN PAYMENT FIRST COVERS ANY INTEREST THAT HAS ACCUMULATED. THE REMAINDER OF THE PARTIAL PAYMENT REDUCES THE LOAN PRINCIPAL

ORDINARY INTEREST

ASSUMES 360DAYS PER YEAR

EXACT INTEREST

ASSUMES 365 DAYS PER YEAR

BANKER'S RULE

CALCULATING INTEREST ON A LOAN BASED ON ORDINARY INTEREST- WHICH YIELDS A SLIGHTLY HIGHER AMOUNT OF INTEREST

SIMPLE INTEREST

INTEREST PAID ON ONLY THE PRINCIPAL OF THE ORIGINAL LOAN OR INVESTMENT

MAKER

TH PERSON OR BUSINESS THAT BORROWS THE MONEY

EFFECTIVE INTEREST RATE OF A SIMPLE DISCOUNT NOTE

THE ACTUAL INTEREST RATE BASED ON THE PROCEEDS OF THE LOAN

FACE VALUE

THE AMOUNT BORROWED

PRINCIPAL

THE AMOUNT OF MONEY BORROWED OR INVESTED

DISCOUNT PERIOD

THE AMOUNT OF TIME THAT THE THIRD PARTY OWNS THE THIRD-PARTY DISCOUNTED NOTE

MATURITY DATE

THE DATE ON WHICH THE LOAN IS DUE TO BE REPAID

PROCEEDS

THE FACE VALUE OF THE LOAN MINUS THE BANK DISCOUNT

BANK DISCOUNT

THE INTEREST OR FEE ON A DISCOUNTED NOTE THAT IS SUBTRACTED FROM THE AMOUNT BORROWED AT THE TIME THE LOAN IS MADE

TERM

THE LENGTH F TIME FOR WHICH THE MONEY IS BORROWED

PRIME INTEREST RATE (PRIME), REFERENCE RATE OR BASE LENDING RATE

THE LOWEST RATE OF INTEREST CHARGED BY BANKS FOR SHORT-TERM LOANS TO THEIR MOST CREDITWORTHY CUSTOMERS

TIME

THE NUMBER OF DAYS, MONTHS, OR YEARS THAT THE MONEY IS BORROWED OR INVESTED

RATE

THE PERCENT OF THE PRINCIPAL PAID AS INTEREST PER TIME PERIOD

PAYEE

THE PERSON OR BUSINESS LOANING THE MONEY

ADJUSTED PRINCIPAL

THE REMAINING PRINCIPAL AFTER A PARTIAL PAYMENT HAS BEEN PROPERLY CREDITED

ADJUSTED BALANCE DUE AT MATURITY

THE REMAINING PRINCIPAL DUE AT MATURITY AFTER ONE OR MORE PARTIAL PAYMENTS HAVE BEEN MADE

MATURITY VALUE

THE TOTAL AMOUNT OF MONEY DUE AT THE END OF ALOAN PERIOD- THE AMOUNT OF THE LOAN AND THE INTEREST

EXACT TIME

TIME THAT IS BASED ON COUNTING THE EXACT NUMBER OF DAYS IN A TIME PERIOD