Question 1

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

Accepted Answer

A)  $8.75
B)  $78.50
C)  $86.30
D)  $87.50
E)  None of theseF) C) and D)
G) B) and C)

Question 2

Match the following terms with their definitions.
-Promissory note

Accepted Answer

A)  Number of days bank will wait for its money in the discount process
B)  Cash paid on due date
C)  The principal
D)  Maturity value minus bank discount
E)  A written promiseF) Bank deducts interest in advanceG) Signs the noteH) Rate bank charges in the discounting processI) True rate of interestJ) Due dateK) Ability to borrow quicklyL) Amount bank charges in the discounting processM) Maturity value greater than original noteN) A) and G)
O) G) and L)

Question 3

A simple discount note does not involve a bank discount.

Accepted Answer

A) True 
 B)False

Question 4

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.

Accepted Answer

MV = 25,000 × .08 × 120/360 = ...

Question 5

Calculate proceeds for the interest-bearing note using ordinary interest:
 $$\begin{array} { | l | l | l | } 
\hline \text { Face Value } & \text { Discount Rate } & \text { Time in Days } \
\hline \$ 36,000 & 14 \% & 92 \
\hline
\end{array}$$

Accepted Answer

The answer of Calculate proceeds for the interest-bearing note using...

Question 6

Calculate the maturity value for this interest-bearing note using ordinary interest:
Face Value = $48,000, Time = 82 days, Rate = 12%

Accepted Answer

$48,000 + $1,312 = $...

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Match the following terms with their definitions.
-Simple discount note

Accepted Answer

A)  Number of days bank will wait for its money in the discount process
B)  Cash paid on due date
C)  The principal
D)  Maturity value minus bank discount
E)  A written promiseF) Bank deducts interest in advanceG) Signs the noteH) Rate bank charges in the discounting processI) True rate of interestJ) Due dateK) Ability to borrow quicklyL) Amount bank charges in the discounting processM) Maturity value greater than original noteN) B) and M)
O) L) and M)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

An 8% 13-week Treasury bill would have an effective interest rate of what (to the nearest hundredth percent) ? Assume it is a $10,000 Treasury bill.

Accepted Answer

A)  8.20%
B)  8.16%
C)  8.19%
D)  9.00%
E)  None of theseF) A) and E)
G) None of the above

Question 11

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.

Accepted Answer

5,000 × .08 × 60/360 = $66.67;...

Question 12

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.

Accepted Answer

MV = 5,000 × .07 × 180/360 = $...

Question 13

A simple discount note results in:

Accepted Answer

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 theseF) A) and E)
G) B) and C)

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

The maker of a promissory note issues the note.

Accepted Answer

A) True 
 B)False

Question 16

Mark Price, the owner of Biggie's Restaurant, took a simple discount note for two years from PNC Bank for renovations. His loan was for $10,000 at a 6% discount rate. Calculate (A)bank discount, (B)proceeds, (C)effective rate to the nearest tenth.

Accepted Answer

A. 10,000 × .06 × 2...

Question 17

Match the following terms with their definitions.
-Effective rate

Accepted Answer

A)  Number of days bank will wait for its money in the discount process
B)  Cash paid on due date
C)  The principal
D)  Maturity value minus bank discount
E)  A written promiseF) Bank deducts interest in advanceG) Signs the noteH) Rate bank charges in the discounting processI) True rate of interestJ) Due dateK) Ability to borrow quicklyL) Amount bank charges in the discounting processM) Maturity value greater than original noteN) G) and M)
O) E) and F)

Question 18

A Treasury bill must be 13 weeks.

Accepted Answer

A) True 
 B)False

Question 19

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 theseF) A) and D)
G) B) and C)

Question 20

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 theseF) D) and E)
G) A) and D)

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct Answerverified5,000 × .08 × 60/360 = $66.67;...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Match the following terms with their definitions. -Simple discount note

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A simple discount note results in:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedMV = 25,000 × .08 × 120/360 = ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedMV = 5,000 × .07 × 180/360 = $...View AnswerShow Answer

An 8% 13-week Treasury bill would have an effective interest rate of what (to the nearest hundredth percent) ? Assume it is a $10,000 Treasury bill.

Correct AnswerverifiedShow Answer

A simple discount note does not involve a bank discount.

Correct AnswerverifiedShow Answer

Mark Price, the owner of Biggie's Restaurant, took a simple discount note for two years from PNC Bank for renovations. His loan was for $10,000 at a 6% discount rate. Calculate (A)bank discount, (B)proceeds, (C)effective rate to the nearest tenth.

Correct AnswerverifiedA. 10,000 × .06 × 2...View AnswerShow Answer

Calculate the maturity value for this interest-bearing note using ordinary interest: Face Value = $48,000, Time = 82 days, Rate = 12%

Correct Answerverified$48,000 + $1,312 = $...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Match the following terms with their definitions. -Effective rate

Correct AnswerverifiedShow Answer

Match the following terms with their definitions. -Promissory note

Correct AnswerverifiedShow Answer

A Treasury bill must be 13 weeks.

Correct AnswerverifiedShow Answer

The maker of a promissory note issues the note.

Correct AnswerverifiedShow Answer

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5,000 × .08 × 60/360 = $66.67;...
View Answer

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MV = 25,000 × .08 × 120/360 = ...
View Answer

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MV = 5,000 × .07 × 180/360 = $...
View Answer

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A. 10,000 × .06 × 2...
View Answer

Correct Answer
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$48,000 + $1,312 = $...
View Answer

Correct Answer
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