Deck 17: Promissory Notes, Simple Discount Notes, and the Discount Process

Question 1

A promissory note is always an oral promise.

Answer 1

False

Question 2

The maturity value of a non-interest-bearing note is the same as its face value.

Answer 2

True

Question 3

All interest-bearing notes must have the rate stated on the note.

Answer 3

True

Question 4

A simple discount note results in a higher interest rate (effective rate) than a simple interest note.

Question 5

The maker of a promissory note issues the note.

Question 6

The maturity value of an interest-bearing note is principal minus interest.

Question 7

The purchase price (or proceeds) of a Treasury bill would be the value of the Treasury bill plus the discount.

Question 8

A simple discount note does not involve a bank discount.

Question 9

Proceeds of a simple discount note equals amount borrowed minus bank discount.

Question 10

Banks can never deduct interest in advance on a loan.

Question 11

The discount period represents the exact number of days the original lender will have to wait for the note to come due.

Question 12

Proceeds from discounting an interest-bearing note is the principal minus the bank discount.

Question 13

An interest-bearing note can be discounted before the maturity date.

Question 14

The principal of a promissory note is the face value.

Question 15

The maturity date of a promissory note represents when only the principal is due.

Question 16

A Treasury bill must be 13 weeks.

Question 17

The rate on a promissory note is always stated as a semiannual rate.

Question 18

Bank discount on a simple discount note is based on the amount a borrower receives and not what he or she pays back.

Question 19

The payee of a promissory note is extending the credit.

Question 20

The calculation of the bank discount when discounting an interest-bearing note uses maturity value.

Question 21

The maturity value of a $16,000 non-interest-bearing, simple discount 6%, 60-day note is:

A) $16,160
B) $16,000
C) $16,610
D) $16,600
E) None of these

Question 22

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

A) $14,600
B) $15,400
C) $400
D) $15,000
E) None of these

Question 23

A $25,000, 15%, 80-day note dated November 5 is discounted at National Bank on January 5. The discount period is:

A) 80 days
B) 19 days
C) 61 days
D) 91 days
E) None of these

Question 24

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

A) Maturity date
B) Date of original note
C) Number of days from date of discount to date of maturity
D) Number of days from date of original note to date of maturity
E) None of these

Question 25

To calculate Time, Interest is divided by Principal times:

A) Amount of the note
B) Discount
C) Face value
D) Rate
E) None of these

Question 26

Lines of credit provide companies with additional financing that is immediately available to them.

Question 27

A $120,000, 5%, 200-day note dated June 6 is discounted on October 8. The discount period is:

A) 124 days
B) 76 days
C) 142 days
D) 67 days
E) None of these

Question 28

The rate on a $1,200, 90 day note that cost $17.75 in interest is:

A) 5%
B) 6%
C) 7%
D) 5.14%
E) None of these

Question 29

A $7,000, 4%, 120-day note dated March 20 is discounted on July 15. Assuming a 3% discount rate, the bank discount is:

A) $1.74
B) $1.77
C) $7.11
D) $17.68
E) None of these

Question 30

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:

A) $15,550.00
B) $15,351.74
C) $15,531.74
D) $15,135.47
E) None of these

Question 31

The maturity value of an interest-bearing note is:

A) Principal - interest
B) Principal + proceeds
C) Principal + interest
D) Principal - bank discount
E) None of these

Question 32

A promissory note:

A) Is an oral promise
B) Is a conditional promise
C) Has a fixed time
D) Has a variable time in the future to be paid
E) None of these

Question 33

A simple discount note results in:

A) Lower interest costs than a simple interest note
B) Same interest costs as a simple interest note
C) Interest deducted when note is paid back
D) Interest deducted in advance
E) None of these

Question 34

The effective rate of a $25,000 non-interest-bearing simple discount 10%, 90-day note is:

A) 10.62%
B) 10%
C) 10.8%
D) 10.26%
E) None of these

Question 35

The maturity value of a $20,000, 7%, 75-day interest-bearing note dated September 10 is:

A) $22,912.67
B) $20,291.67
C) $21,029.67
D) $22,219.76
E) None of these

Question 36

The bank discount of an $18,000 non-interest-bearing, simple discount 8%, 90-day note is:

A) $18,360
B) $17,640
C) $630
D) $360
E) None of these

Question 37

The maker of a promissory note:

A) Issues the note
B) Never borrows the money
C) Extends the credit
D) Issues the note and extends credit
E) None of these

Question 38

A $15,000, 6%, 50-day note dated November 8 is discounted at 5% on November 28. The proceeds of the note would be:

A) $14,936.46
B) $15,610.64
C) $63.54
D) $15,061.98
E) None of these

Question 39

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

Question 40

If one discounts a non-interest-bearing note, all the following will be used except:

A) Principal + interest
B) Discount rate
C) Discount period
D) Face value of the note
E) None of these

Question 41

Jill Jones borrowed $18,000 for 180 days from Sovereign Bank. The bank discounts the note at 8%. The effective interest rate to the nearest hundredth percent is:

A) 8.33%
B) 8.32%
C) 8.23%
D) 8.31%
E) None of these

Question 42

Jone Corporation accepted a $25,000, 8%, 120-day note on July 8. Jone discounted the note on September 4 at Rool Bank at 7%. What proceeds did Jone receive? Use ordinary interest.

Question 43

Abe Corp. discounted a 120-day note with a maturity value of $8,000 dated June 8 at the Village Bank on Sept. 2 at a discount rate of 9%. Use ordinary interest. How much did Abe receive?

Question 44

Ralph Corporation accepted a $15,000, 11%, 120-day note dated August 19 from Jay Company in settlement of a past bill. On October 20, Ralph Corporation decided to discount the note at a discount rate of 12%. The proceeds to Ralph Corporation is:

A) $1,517.97
B) $1,517.79
C) $15,249.73
D) $15,249.37
E) None of these

Question 45

Use ordinary interest:

Question 46

Use ordinary interest:

Question 47

Mover Co. discounted a $2,000, 60-day note dated June 4 at Gloria Bank on June 20 at a discount rate of 9%. Use ordinary interest. How much did Mover Co. receive?

Question 48

An 8% 13-week Treasury bill would have an effective interest rate of (to the nearest hundredth percent)? Assume it is a $10,000 Treasury bill.

A) 8.20%
B) 8.16%
C) 8.17%
D) 9.00%
E) None of these

Question 49

Jill Corporation accepted a $16,000 note on Aug. 12. Terms of the note were 13% for 100 days. Jill discounted the note on September 28 at the Reno Bank at 14%. The proceeds to Jill would be:

A) $341.69
B) $16,236.09
C) $303.00
D) $16,277.78
E) None of these

Question 50

On June 30 Rose Company accepted a 90-day, $12,000 non-interest-bearing note from C Manufacturer. The maturity value of the note for Rose is:

A) $11,500
B) $11,800
C) $11,900
D) $11,950
E) None of these

Question 51

On July 18, Aui Lester accepted a $15,000, 7 3/4%, 180-day note from Ryan O'Flynn. On October 5, Aui discounted the note at Brome Bank at 8 1/4%. What proceeds did Aui receive? Use ordinary interest.

Question 52

Use ordinary interest:

Question 53

On May 7, Ralph Blue accepted a $5,000 note from Dick Shea. Terms of the note were 7% for 180 days. On Aug. 19, Ralph could no longer wait for the money and discounted the note at Tover Bank at a discount rate of 8%. Calculate Ralph's proceeds. Use ordinary interest.

Question 54

Use ordinary interest:

Question 55

Moris Bank discounts a 100-day note for $6,000 at 11%. Find
(A) bank discount and
(B) proceeds. Use ordinary interest.

Question 56

On March 12, Bill Jones accepted a $12,000 note in granting a time extension of a bill for goods purchased by Ron Prentice. Terms of the note were 13% for 90 days. On April 24, Bill could no longer wait for the money and discounted the note at Able Bank at a discount rate of 14%. The proceeds to Bill is:

A) $12,047.90
B) $12,163.54
C) $12,390.00
D) $12,048.90
E) None of these

Question 57

Ray Furniture wants to buy a dining room set for $7,000 with a 20% trade discount. Ray needs the cash to pay the bill and is considering discounting a 90-day note dated May 12 with a maturity value of $6,500 at Hunt Bank at a discount rate of 13% on June 5. The bank discount if Ray discounts the note is:

A) $211.25
B) $1,400
C) $154.92
D) $212.15
E) None of these

Question 58

Jay discounts a 100-day note for $25,000 at 13%. The effective rate of interest to the nearest hundredth percent is:

A) 13.48%
B) 13.49%
C) 13.02%
D) 13.03%
E) None of these

Question 59

Shelley Corporation discounted a $7,000, 90-day note dated June 18 at the Sunshine Bank on July 18 at a discount rate of 12%. (Assume the $7,000 is the maturity value.) The amount of bank discount is:

A) $70
B) $210
C) $140
D) $240
E) None of these

Question 60

On April 12, Dr. Rowan accepted a $10,000, 60-day, 11% note from Bill Moss granting a time extension on a past-due account. Dr. Rowan discounted the note at the bank at 12% on May 13. The bank discount is:

A) $98.44
B) $111.94
C) $94.48
D) $111.49
E) None of these

Question 61

Lois Longin buys a $10,000 13-week Treasury bill at 11%. Use ordinary interest. What is her effective rate to nearest hundredth percent?

Question 62

Able Co. accepted a $20,000 note on March 10 with terms of 6%, 60 days. Able Co. discounted the note on March 20 at the Green Bank at 7%. Use ordinary interest. What net proceeds did Able receive?

Question 63

On October 15, Daniel Miller accepted a $5,000, 60-day, 8% note from Bill Boyer granting a time extension on a past-due amount. Daniel discounted the note at Volve Bank at 9% on Oct. 26. Use ordinary interest. Calculate Daniel's proceeds.

Question 64

Molly Lenny bought a $10,000 13-week Treasury bill at 13%. What is her effective rate? Use ordinary interest. Round to nearest hundredth percent.