Simple Discount Notes Section 9.3. Terms used with Discount Notes Proceeds  What the borrower gets Discount  What the bank gets Face Value  Maturity.

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Presentation transcript:

Simple Discount Notes Section 9.3

Terms used with Discount Notes Proceeds  What the borrower gets Discount  What the bank gets Face Value  Maturity Value (Total amount of the loan)

FORMULAS To find the Bank Discount: B = MDT To find Proceeds: P = M – B To find Maturity Value: M = P + B

A simple discount loan has a maturity value of $15,800; discount rate of 9%; and a time of 180 days. Find the bank discount and proceeds. A 220 day loan with a face value of $40,000 has a discount rate of 12%. Find the proceeds.

Finding Face Value to Achieve Desired Proceeds M = P (1 – DT)

A 300 day note has proceeds of $48,000 and a discount rate of 8.8%. Find the maturity value. Two notes both have face values of $24,000 and a time of 180 days. The first note has simple interest rate of 9%, and the second has a simple discount rate of 9%. Find the maturity value of each.

Effective Interest Rate a.k.a: Annual Percentage Rate, APR, or “True Rate” (Use I = PRT) Find the effective rate (APR) for a loan with a loan amount of $31,000 a time of 90 days, and interest of $