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Exam 17: Promissory Notes, Simple Discount Notes, and the Discount Process

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Question 31

True/False

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

A) True
B) False

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Question 32

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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

F) A) and D)
G) All of the above

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Question 33

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

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

The payee of a promissory note is extending the credit.

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?

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

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?

The maturity value of an interest-bearing note is:

A Treasury bill must be 13 weeks.

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

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

The principal of a promissory note is the face value.

A simple discount note results in:

A simple discount note does not involve a bank discount.

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:

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.

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:

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

The rate on a $1,200, 90 day note that cost $17.75 in interest is: