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

Question

Quizplus · Accepted Answer

The bank discount is the difference between the face value of the note and the discounted price, which is calculated using the maturity value (also known as the redemption value or face value at maturity). The formula for bank discount is:

Bank discount = Face value × Discount rate × Time

The maturity value is used to determine the face value of the note, which is then used in the calculation of the bank discount.

The Calculation of the Bank Discount When Discounting an Interest-Bearing