BUS 125 Business Math Chapter 11 Quiz

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]

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

$400 (15000x.12x(80/360)

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]

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.)

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

5.04% [250/(29,750x(60/360))]

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 promissory note

Has a fixed time

A simple discount note results in

Interest deducted in advance

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

Number of days from date of discount to date of maturity