Chapter 12

Discount

Also called the Bank Discount. The amount of interest that is charged on a note.

Term of the Note

The length of time until the note is due. The length of the term of the note is variable.

Simple Discount Note

A note that has the interest deducted in advance from the face value written on the note. Also known as Simple Discount Note.

Proceeds

A sum of money that the borrower receives that equals the face value of the note less the discount.

Interest in Advance Notes

Also known as Simple Discount Note. A note that has the interest deducted in advance from the face value written on the note.

US Treasury bills

Also known as T-bills these are a common use of discount notes.

Federal Truth in Lending Act

An act that requires all interest rates be given in a standard way so that they can quickly and easily be compared to one another. This lending act is known rarely as the FTLA.

Recourse

If the note does not pay for some reason the bank collects from the seller of the note.

Factoring

It occurs when a business sells parts of its accounts receivable to a financial institution.

Collateral

Pledged assets that are used to secure notes written by a bank. It is like Nicolas Cage's watch in National Treasure.

Stated Rate

Sometimes called the Stated Rate. The rate that is written or stated on a note.

True Interest Rate

The actual interest rate on the amount received by the borrower. It is also known as the The Effective Interest Rate or the Annual Percentage Rate.

Annual Percentage Rate

The actual interest rate on the amount received by the borrower. It is also known as the The Effective Interest Rate or the True Interest Rate.

The Effective Interest Rate

The actual interest rate on the amount received by the borrower. It is also known as the True Interest Rate or the Annual Percentage Rate.

Bank Discount

The amount of interest that is charged on a note. Also just called a discount.

Maturity Value

The face value plus any interest that is due.

Simple Interest Note

The name for a note because the interest for the note is found by using formulas for simple interest.

Discount Period

The number of days or period from the date on the note until the note is due. Doesn't really have anything to do with discounts.

Factors

The people who buy the accounts receivable from factoring.

Payee of the Note

The person who will receive the payment of the note, they will be paid.

Discounting a Note

The process of receiving cash for a note or selling a note. Has something to do with discounting.

The Nominal Interest Rate

The rate that is written or stated on a note. Also known as the Stated Rate.

Rediscounted

The same note being discounted twice.

Maker

This is the person borrowing the money of the note. They make the note.

Payer

This is the person borrowing the money of the note. They pay the money in the note.

Face Value

This is the principal of the note, and is written on a line in dollars. It is the maturity value without interest.

Promissory Note

Written proof of a loan to an individual or business. A note that promises.