A discounted note represents a contingent liability to the original holder.

Question

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A discounted note is a promise to pay a certain amount at a future date with a discount applied to its face value. Therefore, the original holder of the note is guaranteed to receive less than the face value at maturity, creating a liability for the issuer to pay the discounted amount. This liability is contingent on the payment of the note by the issuer at maturity.

A Discounted Note Represents a Contingent Liability to the Original