Prepared by Charlie Cook The University of West Alabama © 2009 South-Western, a part of Cengage Learning Promissory Notes and Discounting: Assignments Chapter 15

15–2 © 2009 South-Western, a part of Cengage Learning

15–3 © 2009 South-Western, a part of Cengage Learning Figure 15.1Promissory Note

15–4 © 2009 South-Western, a part of Cengage Learning to Compute the Number of Interest Days Between Two Dates 1.Determine the number of interest days in the beginning month. 2.Determine the number of interest days in the middle months. 3.Add the numbers from Steps 1 and 2 to the number of interest days in the final month. (For the final month, the number of interest days is equal to the number of the due date.) 1

15–5 © 2009 South-Western, a part of Cengage Learning Table 15.1Days in Each Month (non-leap years)

15–6 © 2009 South-Western, a part of Cengage Learning 1 E X A M P L E A promissory note is made on July 25. The due date is October 8. Use Table 15-1 to help you determine the number of interest days between July 25 and October 8.

15–7 © 2009 South-Western, a part of Cengage Learning to Determine the Due Date 1.Determine the number of interest days in the beginning month. 2.Determine the number of interest days that remain after the first month. 3.Determine the number of interest days remaining at the end of each succeeding month by subtracting. Continue subtracting until less than 1 month remains. The due date is the number of interest days remaining in the final month. 2

15–8 © 2009 South-Western, a part of Cengage Learning 2 E X A M P L E

15–9 © 2009 South-Western, a part of Cengage Learning The maturity value ( MV ) of a promissory note is the sum of the face value (principal) of the note and the interest: Maturity Value = Principal + Interest, or MV = P + I 3 T E R M S

15–10 © 2009 South-Western, a part of Cengage Learning to Discount a Promissory Note 1.Compute the interest amount ( I ) and maturity value ( MV ) of the promissory note. 2.Determine the maturity (due) date of the note. 3.Compute the number of days in the discount period. The time, T, is the number of days in the discount period divided by 360, or by Compute the discount amount, using D = MV × R × T, where R is the discount rate. 5.Compute the proceeds by subtracting the discount amount from the maturity value. 4

15–11 © 2009 South-Western, a part of Cengage Learning 4 E X A M P L E Non-Interest-Bearing Promissory Notes

15–12 © 2009 South-Western, a part of Cengage Learning to Discount a Bank Loan 1.Compute the discount amount as D = FV × R × T, where R is the discount rate. 2.Compute the proceeds by subtracting the discount amount from the face value. 5

15–13 © 2009 South-Western, a part of Cengage Learning 2 E X A M P L E Borrowing Money to Take a Cash Discount

15–14 © 2009 South-Western, a part of Cengage Learning Assignment 15.1: Dates, Times, and Maturity Value A Problems 1–6: Find the number of interest days. Be sure to check for leap years.

15–15 © 2009 South-Western, a part of Cengage Learning Assignment 15.1: Dates, Times, and Maturity Value A Problems 7–12: Find the due date. Be sure to check for leap years.

15–16 © 2009 South-Western, a part of Cengage Learning Assignment 15.1: Dates, Times, and Maturity Value B For each of the following promissory notes, find the missing entry for days of interest or maturity date (due date). Then compute the amount of interest due at maturity and the maturity value. For problems 13–16, use a 360-day year.

15–17 © 2009 South-Western, a part of Cengage Learning Assignment 15.1: Dates, Times, and Maturity Value B For each of the following promissory notes, find the missing entry for days of interest or maturity date (due date). Then compute the amount of interest due at maturity and the maturity value. For problems 17–20, use a 365-day year.

15–18 © 2009 South-Western, a part of Cengage Learning Assignment 15.2: Discounting Promissory Notes A Compute the missing information to discount the following interest-bearing and noninterest-bearing promissory notes. Use a 360-day year for all interest and discount calculations.

15–19 © 2009 South-Western, a part of Cengage Learning Assignment 15.2: Discounting Promissory Notes A Compute the missing information to discount the following interest-bearing and noninterest-bearing promissory notes. Use a 360-day year for all interest and discount calculations.

15–20 © 2009 South-Western, a part of Cengage Learning Assignment 15.2: Discounting Promissory Notes B Compute the missing information to discount the following interest-bearing and noninterest-bearing promissory notes. Use a 365-day year for all interest and discount calculations.

15–21 © 2009 South-Western, a part of Cengage Learning Assignment 15.2: Discounting Promissory Notes B Compute the missing information to discount the following interest-bearing and noninterest-bearing promissory notes. Use a 365-day year for all interest and discount calculations.

15–22 © 2009 South-Western, a part of Cengage Learning Assignment 15.3: Bank Discounting and Cash Discounts A The Citizens’ Bank of New England made six new loans on a discount basis. Compute the discount amount and the proceeds. Then compute the actual interest rate based on the proceeds rather than the face value. Use a 360-day year for problems 1–3. Round the actual interest rates to the nearest 1/100 of a percent.

15–23 © 2009 South-Western, a part of Cengage Learning Assignment 15.3: Bank Discounting and Cash Discounts A The Citizens’ Bank of New England made six new loans on a discount basis. Compute the discount amount and the proceeds. Then compute the actual interest rate based on the proceeds rather than the face value. Use 365-day year for problems 4–6. Round the actual interest rates to the nearest 1/100 of a percent.

15–24 © 2009 South-Western, a part of Cengage Learning Assignment 15.3: Bank Discounting and Cash Discounts B William Bros. Home Builders made several purchases from vendors who offered various terms of payment. How much can William Bros. save on each invoice if it borrows the money to pay the invoice early and receive the cash discount? The loan interest rates are all exact simple interest (365-day year). Assume that the number of interest days is the time between the due date and the last day to take advantage of the cash discount.

15–25 © 2009 South-Western, a part of Cengage Learning Assignment 15.3: Bank Discounting and Cash Discounts B William Bros. Home Builders made several purchases from vendors who offered various terms of payment. How much can William Bros. save on each invoice if it borrows the money to pay the invoice early and receive the cash discount? The loan interest rates are all exact simple interest (365-day year). Assume that the number of interest days is the time between the due date and the last day to take advantage of the cash discount.

15–26 © 2009 South-Western, a part of Cengage Learning Assignment 15.3: Bank Discounting and Cash Discounts B William Bros. Home Builders made several purchases from vendors who offered various terms of payment. How much can William Bros. save on each invoice if it borrows the money to pay the invoice early and receive the cash discount? The loan interest rates are all exact simple interest (365-day year). Assume that the number of interest days is the time between the due date and the last day to take advantage of the cash discount.

15–27 © 2009 South-Western, a part of Cengage Learning Chapter Terms for Review bank discount loan bearer discounted note discount amount discount date discount period discount rate due date face value interest-bearing note interest dollars maker maturity date maturity value negotiable promissory note non-interest-bearing promissory note proceeds promissory note