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

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

The maker of a promissory note issues the note.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

The payee of a promissory note is extending the credit.

Question 10

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

Question 11

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

Question 12

A simple discount note does not involve a bank discount.

Question 13

A Treasury bill must be 13 weeks.

Question 14

A promissory note is always an oral promise.

Question 15

Banks can never deduct interest in advance on a loan.

Question 16

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

Question 17

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

Question 18

The principal of a promissory note is the face value.

Question 19

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

Question 20

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

Question 21

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 22

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 23

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 24

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 25

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 26

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

A) 10.62%
B) 10.0%
C) 10.8%
D) 10.26%
E) None of these

Question 27

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 28

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 29

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 30

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 31

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

Question 32

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 33

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 34

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 35

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 36

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 37

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 38

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 39

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

A) 5.0%
B) 5.04%
C) 6.0%
D) 5.14%
E) None of these

Question 40

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 41

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 42

Compute bank discount using (A) ordinary interest, (B) proceeds, and (C) effective interest rate to nearest hundredth. Do not round denominator in your calculation.

A. $520;
B. $11,480;
C. 13.59%

Question 43

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 are:

A) $12,047.90
B) $12,163.54
C) $12,390.00
D) $12,048.90
E) None of these

Question 44

Compute bank discount using (A) ordinary interest, (B) proceeds, and (C) effective interest rate to the nearest hundredth. Do not round denominator in your calculation.

A. $385;
B. $8,615;
C. 14.63%

Question 45

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 46

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 47

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.

Question 48

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 49

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 are:

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

Question 50

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 51

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 52

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 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

Wayne Night signed a $10,000 note at Lynn Bank that charges a 7% discount rate. Use ordinary interest. If the loan is for 150 days, find:
A. $9,708.33;
A. Proceeds
B. 7.2%
B. Effective rate charges by the bank (to the nearest tenth percent)

Question 55

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 56

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 57

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 58

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 59

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.

Question 60

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) $1,400.00
C) $154.92
D) $212.15
E) None of these

Question 61

On October 15, Daniel Miller accepted a $5,000, 60-day, 8% note from Bill Boyer granting a time extension on a past-due amount. Daniel discounted the note at Volve Bank at 9% on Oct. 26. Use ordinary interest. Calculate Daniel's proceeds.

Question 62

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?

Question 63

Alfred Corp. accepted a $12,000 note on July 15, with terms of 14% for 60 days. Alfred discounted the note on July 28, at the Victory Bank at 10%. What proceeds did Alfred receive? Use ordinary interest.

Question 64

Use ordinary interest:

A. $61,400;
B. 45 days
C. $60,555.75

Question 65

Calculate maturity value for the interest-bearing note using ordinary interest:

Question 66

Lois Longin buys a $10,000 13-week Treasury bill at 11%. Use ordinary interest. What is her effective rate to nearest hundredth percent?

Question 67

Molly Lenny bought a $10,000 13-week Treasury bill at 13%. What is her effective rate? Use ordinary interest. Round to nearest hundredth percent.

Question 68

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.

Question 69

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?

Question 70

Morris Bank discounts a 100-day note for $6,000 at 11%. Find (A) bank discount and (B) proceeds. Use ordinary interest.
A. $183.33;
B. $5,816.67

Question 71

Able Co. accepted a $20,000 note on March 10 with terms of 6%, 60 days. Able Co. discounted the note on March 20, at the Green Bank at 7%. Use ordinary interest. What net proceeds did Able receive?

Question 72

Calculate maturity value for the interest-bearing note using ordinary interest:

Question 73

Use ordinary interest:

A. $18,480;
B. 31;
C. $18,320.87

Question 74

On May 12, Joy Co. accepted a $1,000, 60-day, 6% note from Abe Wills, granting a time extension on a past-due account. Joy discounted the note at the bank at 9% on May 28. Use ordinary interest. Calculate Joy's proceeds.

Question 75

Use ordinary interest:

A. $93,750
B. 110 days
C. $90,598.96