Question 1

In calculating the bank discount when discounting an interest-bearing note, which one of the following is not used in the calculation?

Accepted Answer

A) Principal proceeds 
B) Maturity value 
C) Bank discount rate 
D) Discount period 
E) None of these

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.

Accepted Answer

A) True 
 B)False

Question 3

The maturity value of a $16,000 non-interest-bearing, simple discount 6%, 60-day note is:

Accepted Answer

A) $16,160 
B) $16,000 
C) $16,610 
D) $16,600 
E) None of these

Question 4

A $7,000, 4%, 120-day note dated March 20 is discounted on July 15. Assuming a 3% discount rate, the bank discount is:

Accepted Answer

A) $1.74 
B) $1.77 
C) $7.11 
D) $17.68 
E) None of these

Question 5

A $15,000, 6%, 50-day note dated November 8 is discounted at 5% on November 28. The proceeds of the note would be:

Accepted Answer

A) $14,936.46 
B) $15,610.64 
C) $63.54 
D) $15,061.98 
E) None of these

Question 6

The bank discount of an $18,000 non-interest-bearing, simple discount 8%, 90-day note is:

Accepted Answer

A) $18,360 
B) $17,640 
C) $630 
D) $360 
E) None of these

Question 7

B. Blue discounts a 90-day note for $20,000 at 4%. The bank discount is (assume ordinary interest):

Accepted Answer

A) $20,200 
B) $19,800 
C) $200 
D) $2,000 
E) None of these

Question 8

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?

Accepted Answer

A) $1,200 
B) $1,350 
C) $1,250 
D) $61,200 
E) None of these

Question 9

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:

Accepted Answer

A) $211.25 
B) $1,400 
C) $154.92 
D) $212.15 
E) None of these

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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:

Accepted Answer

A) $341.69 
B) $16,236.09 
C) $303.00 
D) $16,277.78 
E) None of these

Question 12

A simple discount note does not involve a bank discount.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

A promissory note is always an oral promise.

Accepted Answer

A) True 
 B)False

Question 16

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:

Accepted Answer

A) $11,500 
B) $11,800 
C) $11,900 
D) $11,950 
E) None of these

Question 17

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:

Accepted Answer

A) $98.44 
B) $111.94 
C) $94.48 
D) $111.49 
E) None of these

Question 18

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.

Accepted Answer

A) 8.20% 
B) 8.16% 
C) 8.17% 
D) 9.00% 
E) None of these

Question 19

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:

Accepted Answer

A) $70 
B) $210 
C) $140 
D) $240 
E) None of these

Question 20

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

Accepted Answer

A) True 
 B)False

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

In calculating the bank discount when discounting an interest-bearing note, which one of the following is not used in the calculation?

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

The maturity value of a $16,000 non-interest-bearing, simple discount 6%, 60-day note is:

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 $15,000, 6%, 50-day note dated November 8 is discounted at 5% on November 28. The proceeds of the note would be:

The bank discount of an $18,000 non-interest-bearing, simple discount 8%, 90-day note is:

B. Blue discounts a 90-day note for $20,000 at 4%. The bank discount is (assume ordinary interest) :

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?

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

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 simple discount note does not involve a bank discount.

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

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

A promissory note is always an oral promise.

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:

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:

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.

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