Chapter 13

U.S. Treasury Bills

A common use of discount notes.

Simple Interest Note

Interest. . . Face value times Rate times Time

Federal Truth in Lending Act

Passed in 1969 because of the confusion resulting from the different ways of calculating interest charges.

Face Value

Same thing as Principal

Discount

See Bank Discount

True Interest Rate

See Effective Interest Rate

Payer

See Maker

Stated Rate

See Nominal Interest Rate

Annual Percentage Rate

See True Interest Rate

T-Bills

See U.S. Treasury Bills

Effective Interest Rate

The actual interest rate on the amount received by borrower.

Term of the Note

The length of time until the note is due.

Collateral

The person borrowing the money must pledge assets that are of equal or greater value than the amount of the loan.

Factoring

The process of selling accounts receivable for cash.

Nominal Interest Rate

The rate that is written or stated on a note.

Simple Discount note

This has the interest deducted in advance from the face value written on the note.

Maturity Value

This is the value of the loan that is the face value plus interest that is due.

Bank Discount

amount of interest charged

Recourse

help for a problem; solution

Factors

people who buy the accounts receivable

Payee

person who loaned the money

Discounting a Note

selling a note for less than the face amount or the current balance

Interest-in-Advance Note

simple discount notes sometimes called this, since the interest is subtracted before any money is given to the owner.

Proceeds

the borrower receives a sum of money called this.

Maker

the person borrowing the money

Rediscounted

the same note, being discounted twice