Question 1

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

Accepted Answer

The answer of Jill Jones borrowed $18,000 for 180 days...

Question 2

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.

Accepted Answer

MV = 25,000 × .08 × 120/360 = 666.67 + 25,000 = 25,666.67; Days left = 120 - 58 = 62; Bank Discount = 25,666.67 × .07 × 62/360 = 309.43; Proceeds = 25,666.67 - 309.43 = $25,357.224.

Question 3

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?

Accepted Answer

Days = 120 - (days between Jun 8 and Sep 2)= 120 - 86 = 34; 8,000 × .09 × 34/360 = 68; 8,000 - 68 = $7932.

Question 4

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

Accepted Answer

The answer of Ralph Corporation accepted a $15,000, 11%, 120-day...

Question 5

Use ordinary interest:

Accepted Answer

The answer of Use ordinary interest: ...

Question 6

Use ordinary interest:

Accepted Answer

The answer of Use ordinary interest: ...

Question 7

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?

Accepted Answer

The answer of Mover Co. discounted a $2,000, 60-day note...

Question 8

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

Accepted Answer

First, we need to calculate the discount (or bond equivalent) yield of the Treasury bill. 
Discount Yield = (Face Value - Purchase Price)/Face Value x 360/days until maturity

For a $10,000 Treasury bill with an 8% annualized yield and a 13-week (or 91 day) maturity: 
Purchase Price = Face Value x (1 - Yield x Days/360) 
Purchase Price = $10,000 x (1 - 0.08 x 91/360) 
Purchase Price = $9,819.44

Discount Yield = ($10,000 - $9,819.44)/$10,000 x 360/91 
Discount Yield = 0.08 or 8%

To convert the discount yield to the effective interest rate, we use the following formula: 
Effective Interest Rate = (1 - Discount Yield x Days/360)/(1 - Discount Yield)

Effective Interest Rate = (1 - 0.08 x 91/360)/(1 - 0.08) 
Effective Interest Rate = 0.0816 or 8.16%

Therefore, the answer is B.

Question 9

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

Accepted Answer

The answer of Jill Corporation accepted a $16,000 note on...

Question 10

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

Accepted Answer

The maturity value of a non-interest-bearing note is its face value, which in this case is $12,000. None of the given options match this value.

Question 11

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.

Accepted Answer

The answer of On July 18, Aui Lester accepted a...

Question 12

Use ordinary interest:

Accepted Answer

The answer of Use ordinary interest: ...

Question 13

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.

Accepted Answer

MV = 5,000 × .07 × 180/360 = $175; 5,000 + 175 = 5,175; Days left = 180 - 104 = 76; Bank rate = 5,175 × .08 × 76/360 = $87.40; Proceeds = $5,175 - $87.40 = $5,087.60.

Question 14

Use ordinary interest:

Accepted Answer

The answer of Use ordinary interest: ...

Question 15

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

Accepted Answer

The answer of Moris Bank discounts a 100-day note for...

Question 16

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

Accepted Answer

The answer of On March 12, Bill Jones accepted a...

Question 17

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

Accepted Answer

Firstly, calculate the amount of the trade discount: 
Trade discount = 20% * $7,000 = $1,400

So Ray would only have to pay $5,600 for the dining room set.

Next, calculate how much Ray would receive if he discounts the note: 
Bank discount = maturity value * discount rate * time 
Time = 90 days / 360 days = 0.25 years

Bank discount = $6,500 * 0.13 * 0.25 = $212.50

However, the bank may round to the nearest cent, so the bank discount is actually: 
Bank discount = $212.50 rounded to the nearest cent = $212.15

Therefore, Ray should discount the note with the bank to receive $6,287.85 ($6,500 - $212.15). This is enough to cover the cost of the dining room set, with $687.85 left over.

Question 18

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

Accepted Answer

To find the effective rate of interest, we must first find the proceeds of the note, which is the amount Jay receives after the discount is taken out:

Proceeds = face value - discount
Proceeds = $25,000 - 13% of $25,000
Proceeds = $25,000 - $3,250
Proceeds = $21,750

Next, we need to find the interest for 100 days:

Interest = (proceeds x rate x time) / 365
Interest = ($21,750 x 0.13 x 100) / 365
Interest = $594.52

Finally, we can calculate the effective rate of interest based on the interest earned and the amount of the note:

Effective rate = (interest / amount of note) x (365 / time)
Effective rate = ($594.52 / $25,000) x (365 / 100)
Effective rate = 0.02378 x 3.65
Effective rate = 0.0869 or 8.69%

To find the effective annual rate, we need to compound the interest for one year:

Effective annual rate = (1 + effective rate) ^ n - 1
Effective annual rate = (1 + 0.0869) ^ (365/100) - 1
Effective annual rate = 0.139 or 13.9%

Rounding this to the nearest hundredth percent, we get 13.49%, which is answer choice B.

Question 19

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

Accepted Answer

First, we need to calculate the time the note was discounted. Since the note was dated June 18 and discounted on July 18, the time the note was discounted is 30 days (July 18 - June 18 = 30).

Next, we can use the bank discount formula:

Bank Discount = Maturity Value x Discount Rate x Time
Bank Discount = $7,000 x 0.12 x (30/360) (remember to convert 90 days to 30 days based on time)
Bank Discount = $140

Therefore, the bank discount is $140, and the best choice is C.

Question 20

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

Accepted Answer

The answer of On April 12, Dr. Rowan accepted a...

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

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:

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.

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?

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:

Use ordinary interest:

Use ordinary interest:

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?

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.

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:

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:

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.

Use ordinary interest:

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.

Use ordinary interest:

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

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

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:

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: