Bài giảng môn học Quản trị kinh doanh - Chapter eleven: Promissory notes, simple discount notes, and the discount process

Chapter ElevenPromissory Notes, Simple Discount Notes, and The Discount ProcessCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinLearning unit objectivesLU 11-1: Structure of Promissory Notes; the Simple Discount NoteDifferentiate between interest-bearing and non-interest-bearing notes.Calculate bank discount and proceeds for simple discount notes.Calculate and compare the interest, maturity value, proceeds, and effective rate of a simple interest note with a simple discount note.Explain and calculate the effective rate for a Treasury bill.LU 11-2: Discounting an Interest-Bearing Note before MaturityCalculate the maturity value, bank discount, and proceeds of discounting an interest-bearing note before maturity.Identify and complete the four steps of the discounting process.Structure of a Promissory NoteSimple Discount Note TerminologySimple Discount Note - A note in which the loan interest is deducted in advance.Bank Discount - The interest that banks deduct in advance.Bank Discount Rate - The percent of interest.Proceeds - The amount the borrower receives after the bank deducts its discount from the loan’s maturity value.Maturity Value – The total amount due at the end of the loan.Simple Discount NoteTerrance Rime borrowed $10,000 for 90 days from Webster Bank. The bank discounted the note at 10%. What proceeds does Terrance receive? $10,000 x .10 x 90 = $250 360$10,000 - $250 = $9,750 ProceedsBank DiscountRateExample: Bank DiscountComparison of simple interest note and simple discount noteComparison of simple interest note and simple discount noteScenarioFace value = $18,000 Interest rate = 8% 60 days 13 52Treasury BillsA Treasury bill is a loan to the federal government.Terms of Purchase: 91 days (13 weeks), or 1 yearExample: If you buy a $10,000, 13-week Treasury bill at 8%, how much will you pay, and what is the effective rate?$10,000 x .08 x= $200Cost = $10,000 -- $200 = $9,800Effective rate = $200 = 8.16% $9,800 x 13 52Discounting an Interest-Bearing Note before MaturityStep 1. Calculate the interest and maturity value.Step 2. Calculate the discount period (time the bank holds note).Step 3. Calculate the bank discount.Step 4. Calculate the proceeds.Discounting an Interest-Bearing Note before Maturity11-10Roger Company sold the following promissory note to the bank:Date of Face Value Length of Interest Bank Discount Date of Note of Note Note Rate Rate DiscountMarch 8 $2,000 185 days 6% 5% August 9Discounting an Interest-Bearing Note before MaturityWhat are Roger’s interest and maturity value? MV = $2,000 + $61.67 = $2,061.67$2,061.67 x .05 x 31 = $8.80 360$2,061.67 – $8.80 = $2,052.87Calculation on next slideWhat are the discount period and bank discount? What are the proceeds?I = $2,000 x .06 x 185 = $61.67 360Roger Company sold the following promissory note to the bank:Date of Face Value Length of Interest Bank Discount Date of Note of Note Note Rate Rate DiscountMarch 8 $2,000 185 days 6% 5% August 9Calculation of days without tableManual CalculationMarch 31 -- 8 23April 30May 31June 30July 31August 9 154 185 days -- length of note-- 154 days Roger held note 31 days bank waitsTable CalculationAugust 9 221 daysMarch 8 -- 67 daysDays passed before note is discounted 154 Length of note 185 -- 154Discount period 31