Question 1

Banks can never deduct interest in advance on a loan.

Accepted Answer

A) True 
 B)False  False

Question 2

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

Accepted Answer

A) .8% 
B) .87% 
C) 8.5% 
D) 8.7% 
E) None of these 
A) .8% 
B) .87% 
C) 8.5% 
D) 8.7% 
E) None of these D

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

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

Question 6

A simple discount note results in:

Accepted Answer

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 
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 7

Tiffany purchased a $10,000, 13-week Treasury bill that is paying 2.25%. What is the effective rate on this T-bill?

Accepted Answer

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

Question 8

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

Accepted Answer

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 
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 9

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

Accepted Answer

A) 5% 
B) 5.04% 
C) 6.0% 
D) 5.14% 
E) None of these 
A) 5% 
B) 5.04% 
C) 6.0% 
D) 5.14% 
E) None of these

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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 
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 12

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:

Accepted Answer

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

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The maturity value of an interest-bearing note is:

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

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:

Accepted Answer

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

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

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

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

Banks can never deduct interest in advance on a loan.

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

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

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

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

A simple discount note results in:

Tiffany purchased a $10,000, 13-week Treasury bill that is paying 2.25%. What is the effective rate on this T-bill?

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

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

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

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

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:

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

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

The maturity value of an interest-bearing note is:

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

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:

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

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

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

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