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
