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

Question 1

The payee of a promissory note is extending the credit.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

The principal of a promissory note is the face value.

Question 9

The maker of a promissory note issues the note.

Question 10

A simple discount note does not involve a bank discount.

Question 11

Banks can never deduct interest in advance on a loan.

Question 12

A Treasury bill must be 13 weeks.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

A promissory note is always an oral promise.

Question 21

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 22

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 23

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 24

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 25

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

A)10.62%
B)10%
C)10.8%
D)10.26%
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

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

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

Question 28

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 29

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 30

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 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

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 33

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 34

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 35

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

Question 36

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 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

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 39

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 40

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

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

Question 41

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 42

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 43

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 44

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 45

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

Question 46

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 47

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

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

Question 48

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 49

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 50

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

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

Question 51

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

Question 52

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

Question 53

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 54

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

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

Question 55

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

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

Question 56

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