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Simple Discount Note

The document outlines the formulas for calculating the bank discount and proceeds for a simple discount note. The bank discount formula multiplies the maturity value by the bank discount rate by the time of the note in weeks divided by 52. The proceeds formula takes the maturity value and subtracts the bank discount to determine the amount the borrower receives. As an example, a $7,000 note at a 5% discount rate for 13 weeks would have a $87.50 bank discount and $6,912.50 proceeds. The borrower receives the proceeds and pays back the maturity value at the end of the loan term.

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28K views

Simple Discount Note

The document outlines the formulas for calculating the bank discount and proceeds for a simple discount note. The bank discount formula multiplies the maturity value by the bank discount rate by the time of the note in weeks divided by 52. The proceeds formula takes the maturity value and subtracts the bank discount to determine the amount the borrower receives. As an example, a $7,000 note at a 5% discount rate for 13 weeks would have a $87.50 bank discount and $6,912.50 proceeds. The borrower receives the proceeds and pays back the maturity value at the end of the loan term.

Uploaded by

Mary
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PDF, TXT or read online on Scribd
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Simple Discount Note Formula

Morrison Pet Supply Company Simple Discount Note December 31, 20XX
Bank Discount for a Simple Discount Note: Formula: Bank discount (Interest) = Maturity Value X Bank Discount Rate X Time of Note. Maturity Value: $7,000 Bank Discount Rate: 5% Time: 13/52 in weeks $7,000 X .05 X 13/52 = $87.50 Bank discount (Interest) To calculate the bank discount multiply the maturity value of the note time the rate time the weeks divided by 52 weeks and you will get the bank discount (Interest) for the note. Proceeds from Simple Discount Note: Formula: Maturity Value Bank discount (Interest) = Proceeds Maturity Value: $7,000 Bank Discount: $87.50 $7,000 $87.50 = $6,912.50 Proceeds To calculate the proceeds take the maturity value and subtract the bank discount (interest) which will give you the proceeds. Note: The Borrower will receive the proceeds at the time the note is taken out and will pay back the maturity value when the loan is due to be paid back to the lender. A good example of a simple discount note is a Treasury bill, such as the one to the left, in which case the general public or companies, who buys the Treasury Bills, are the lenders and the government is the borrower.

MJC Revised 1/2012

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