Deck 11: Promissory Notes, Simple Discount Notes, and the Discount Process

Question 1

A promissory note is always an oral promise.

Answer 1

False

Question 2

A simple discount note does not involve a bank discount.

Answer 2

False

Question 3

Banks can never deduct interest in advance on a loan.

Answer 3

False

Question 4

The payee of a promissory note is extending the credit.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

The maker of a promissory note issues the note.

Question 12

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

Question 13

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

Question 14

The principal of a promissory note is the face value.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

A Treasury bill must be 13 weeks.

Question 21

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 22

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 23

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 24

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 25

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 26

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 27

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 28

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 29

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 30

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 31

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 32

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 33

Maturity value of a non-interest-bearing note is:

A)Less than face value
B)Sometimes equal to face value
C)Greater than face value
D)Same as the face value
E)None of these

Question 34

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

Question 35

The effective rate of a $25,000 non-interest-bearing simple discount 10%, 90-day note is (round to the nearest hundredth of a percent):

A)10.62%
B)10.0%
C)10.8%
D)10.26%
E)None of these

Question 36

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

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

Question 37

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 38

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 39

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 40

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

A)5.0%
B)5.04%
C)6.0%
D)5.14%
E)None of these

Question 41

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 42

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 43

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 are:

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

Question 44

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)$1,400.00
C)$154.92
D)$212.15
E)None of these

Question 45

The bank discounts an $8,750 simple discount note at 6% for 60 days. What is the discount amount?

A)$8.75
B)$78.50
C)$86.30
D)$87.50
E)None of these

Question 46

The maturity value of a $28,000, 6%, 60-day interest-bearing note is:

A)$28,276.16
B)$28,140
C)$28,280
D)$22,800
E)None of these

Question 47

Match the following terms with their definitions.

-Proceeds

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 48

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 are:

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

Question 49

Match the following terms with their definitions.

-Maturity value

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 50

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 51

Justin discounts a 115-day note for $26,000 at 8.5%. The effective rate of interest to the nearest tenth percent is:

A)0.8%
B)0.87%
C)8.5%
D)8.7%
E)None of these

Question 52

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 53

United Missouri Bank discounts a 120-day note for $60,000 at 6.75%. It uses 360 days in a year. What is the bank discount?

A)$1,200
B)$1,350
C)$1,250
D)$61,200
E)None of these

Question 54

Match the following terms with their definitions.

-Simple discount note

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 55

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 56

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

A)8.20%
B)8.16%
C)8.19%
D)9.00%
E)None of these

Question 57

Match the following terms with their definitions.

-Line of credit

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 58

Tiffany purchased a $10,000, 13-week Treasury bill that is paying 2.25%. What is the effective rate on this T-bill? (round to the nearest hundredth of a percent)

A)2.2%
B)2.7%
C)2.26%
D)2.0%
E)None of these

Question 59

B. Blue discounts a 90-day note for $20,000 at 4%. The bank discount is (assume ordinary interest):

A)$20,200
B)$19,800
C)$200
D)$2,000
E)None of these

Question 60

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 61

On October 18, Blue Ridge Corporation accepted a $300,000 non-interest-bearing note from Long Corporation. What is the maturity value of the note? Use ordinary interest.

Question 62

Calculate the maturity value for this interest-bearing note using ordinary interest:
Face Value = $48,000, Time = 82 days, Rate = 12%

Question 63

Match the following terms with their definitions.

-Promissory note

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 64

On May 12, Bob Campbell accepted a $5,000 note in granting a time extension of a bill for goods bought by Rick Ween. Terms of the note were 8% for 120 days. On July 8, Bob needed to raise cash and discounted the note at Rick's bank at a discount rate of 9%. Calculate Bob's proceeds. Use ordinary interest.

Question 65

Match the following terms with their definitions.

-Bank discount rate

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 66

Complete the following for this interest-bearing note that is discounted at 11% (use 360 days).
$$\begin{array} { | l | l | l | l | l | l | l | l | } \hline & \text { Rate of } & & \text { Maturity } & \text { Date Note } & \text { Date Note } & \text { Discount } & \\\text { Principal } & \text { Interest } & \text { Time } & \text { Value } & \text { Made } & \text { Discounted } & \text { Period } & \text { Proceeds } \\\hline \$ 90,000 & 8 \% & 50 \text { days } & \text { A } & \text { Tune 2 } & \text { June 28 } & \text { B } & \text { C } \\\hline\end{array}$$

Question 67

Mobilee Oil Company accepted a $10,000, 120-day note dated March 3 at 8½% to settle a past-due account receivable. Mobilee Oil discounted the note to raise cash on May 10, at a discounted rate of 9%. What proceeds did Mobilee Oil receive? Use ordinary interest.

Question 68

Compute (A)bank discount, (B)proceeds for the following simple discount (use ordinary interest), and (C)the effective interest rate to nearest hundredth percent.
Face Value = $12,000, Discount Rate = 10%, Time = 125 days

Question 69

Match the following terms with their definitions.

-Discount period

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 70

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 71

Match the following terms with their definitions.

-Interest-bearing note

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 72

Juan-Solez, a prominent painter, takes out a simple discount note for one year from River National Bank for $5,000. The annual rate of interest is 8%. What is the amount of:
A. Bank discount
B. Proceeds
C. Effective rate of interest (to nearest tenth percent)

Question 73

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

Question 74

Match the following terms with their definitions.

-Effective rate

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 75

Match the following terms with their definitions.

-Maker

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 76

Match the following terms with their definitions.

-Bank discount

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 77

Match the following terms with their definitions.

-Face value

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 78

Match the following terms with their definitions.

-Maturity date

A)Number of days bank will wait for its money in the discount process
B)Cash paid on due date
C)The principal
D)Maturity value minus bank discount
E)A written promise
F)Bank deducts interest in advance
G)Signs the note
H)Rate bank charges in the discounting process
I)True rate of interest
J)Due date
K)Ability to borrow quickly
L)Amount bank charges in the discounting process
M)Maturity value greater than original note

Question 79

The face value of a simple discount note is $12,000. The discount is 6½% for 90 days. Use ordinary interest. Calculate the following:
A. Amount of interest charged for each note
B. Amount borrower would receive
C. Amount payee would receive at maturity
D. Effective rate (to the nearest tenth percent)

Question 80

Complete the following for this interest-bearing note that is discounted at 11%. (Use 360 days.)
$\begin{array}{|l|l|l|l|l|l|l|l|} \hline& \text { Rate of } & & \text { Maturity } & \text { Date Note } & \text { Date Note } & \text { Discount } & \\\text { Principal } & \text { Interest } & \text { Time } & \text { Value } & \text { Made } & \text { Discounted } & \text { Period } & \text { Proceeds } \\\hline \$ 50,000 & 12 \% & 120 \text { days } & \text { A } & \text { Apr } 5 & \text { May } 20 & \text { B } & \text { C }\\\hline\end{array}$