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Simple Interest & Simple Discount Presented by: Ms. Mikee Sim
Outline • • • • • •
Simple Interest Exact and Ordinary Interest Actual and Approximate Time Simple Discount Promissory Notes Discounting Promissory Notes
Definition of Lender / Creditor – the person or institution that makes the funds available to those who need it. Borrower – the person or institution that avails of the funds from the lender. Interest – a certain sum of money that the lender charges the borrower for the use of the funds. TYPES OF INTEREST: • Simple Interest • Compound Interest
Simple Interest Three Factors: • Principal • Interest Rate • Time or Term of the loan / investment Formula:
I=Prt I = Interest P = Principal r = rate t = term of the loan in years
• Principal – is the sum of money borrowed or invested. • Interest Rate – is the rate charged by the lender or rate of increase of the investment. – Expressed in decimals • Time or Term of the loan – the number of years the sum of money was borrowed or invested.
Simple Interest Three Factors: • Principal • Interest Rate • Time or Term of the loan / investment Formula:
I=Prt I = Interest P = Principal r = rate t = term of the loan in years
How much interest is charged when P10,000 is borrowed for 2 years with an interest rate of 3%? Given: P = P10,000 r = 0.03 I=? t=2 Solution: I = (10,000)(0.03)(2) I = P600 Answer: The interest charged for the use of P10,000 for 2 years is P600.
Maturity Value or Future - The sum of the principal and the Amount interest Formula:
F=P+I F=P+Prt
F=P(1+ rt)
Lucy borrowed P40,000 from a lending firm that charges 6% per year. How much will she pay the lending firm after 5 years? Given:
P = P40,000 r = 0.06 F=? t=5
Solution: F = 40,000 [ 1 + (0.06)(5) ] F = 40,000 (1.3) F = P52,000 Answer: Lucy will have to pay P52,000 after 5 years.
Simple Interest Two categories: •Exact Interest •Ordinary Interest
number of days te = 365 number of days to = 360
Determine the simple interest earned if P3,500 is invested at 15% interest rate in 245 days, (a) using exact interest; (b) using ordinary interest. Given:
P = P3,500 r = 0.15 I=? t = 245 Solution (a): Ie = P r t e Ie = 3,500 (0.15) 245 Ie = P352.40
365
Answer: The simple interest earned P352.40 using exact interest.
is
Simple Interest Two categories: •Exact Interest •Ordinary Interest
number of days te = 365 number of days to = 360
Determine the simple interest earned if P3,500 is invested at 15% interest rate in 245 days, (a) using exact interest; (b) using ordinary interest. Given:
P = P3,500 r = 0.15 I=? t = 245 Solution (b): Io = P r t 0 Io = 3,500 (0.15) 245 Io = P357.29 360
Answer: The simple interest earned P357.29 using ordinary interest.
is
Maturity Value or Future Two categories: •Exact Interest Amount
•Ordinary Interest
number of days
How much will the maturity value of P5,000 be in 48 days if interest rate is at 20%, (a) using exact interest and (b) using ordinary interest. Given: P = P5,000 r = 0.20 F=? t = 48 Solution (a): F = P ( 1 + r te )
te = 365 number of days to = 360
F = 5,000
48 1 (0.2) 365
F = P5,131.51 Answer: P5,000 will accumulate to P5,131.51 using exact interest.
Maturity Value or Future Two categories: •Exact Interest Amount
•Ordinary Interest
number of days te = 365 number of days to = 360
How much will the maturity value of P5,000 be in 48 days if interest rate is at 20%, (a) using exact interest and (b) using ordinary interest. Given: P = P5,000 r = 0.20 F=? t = 48 Solution (b): F = P ( 1 + r to ) F = 5,000
48 1 (0.2) 360
F = P5,133.33 Answer: P5,000 will accumulate to P5,133.33 using ordinary interest.
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
Find the actual time and approximate time between April 15, 2008 and December 21 of the same year. Given: Origin date: April 15, 2008 Maturity date: Dec. 21, 2008 Actual time = ? Solution (a): Mont h
Apr
May
Jun
Jul
Aug
No. of days
30 – 15 = 15
31
30
31
31
Mont h
Sep
Oct
Nov
Dec
Total
Answer: No. 30 31 30 21 250 of are 250 actual days from There days15, 2008 to December 21, April 2008.
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
Find the actual time and approximate time between April 15, 2008 and December 21 of the same year. Given: Origin date: April 15, 2008 Maturity date: Dec. 21, 2008 Approximate time = ? Solution (b): Mont h
Apr
May
Jun
Jul
Aug
No. of days
30 – 15 = 15
30
30
30
30
Mont h
Sep
Oct
Nov
Dec
Total
Answer: No. 30 30 30 21 246 of are 246 approximate days There days from April 15, 2008 to December 21, 2008.
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest, using a.Exact interest for the approximate time; b.Ordinary interest for the approximate time; c.Exact interest for the actual time; d.Ordinary interest for the F=P(1+rt) actual time?
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 F =No ? Tota Mont Jun rJu= 0.15 Au Se Oc h l g p t v l Actual time No. of days
30 – 25 = 5
3 1
31
Mont Jun Ju Au h l g Approximate time No. of
30 – 25 =
3 0
30
30
31
18
146
Se Oc p t
No v
Tota l
30
18
143
30
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (a):Exact interest for the approx. time? F = P ( 1 + r te ) F = 10,000 F = P10,587.67
143 1 ( 0 . 15 ) 365
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (b): Ordinary interest for the approx. time? F = P ( 1 + r to ) F = 10,000 F = P10,595.83
143 1 ( 0 . 15 ) 360
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (c): Exact interest for the actual time? F = P ( 1 + r te )
146 1 ( 0 . 15 ) 365
F = 10,000 F = P10,600
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (d): Ordinary interest for the actual time? F = P ( 1 + r te ) F = 10,000 F = P10,608.33
146 1 ( 0 . 15 ) 360
Simple Discount
Formula:
Is the simple interest collected or deducted in advance from the amount of loan. Proceeds of the loan,
Id = F d t
Pr
- The amount that is left after the interest is deducted. Three factors: • Maturity value of the loan, F • Discount rate, d • Time/term of the loan, t
Formula:
Pr = F - I d Pr = F – F d t
Pr = F ( 1 - d t )
Simple Discount
Id = F d t Pr = F - Id Pr = F ( 1 dt)
How much interest will be deducted from a loan worth P20,000 after 3 years with a discount rate of 6%? How much will be the proceeds of the loan? Given: F = P20,000 d = 0.06 Id = ? t = 3 years Pr = ? Solution: Id = F d t
Pr = F – I d
Id = 20,000 (0.06)(3) Pr = 20,000 – 3,600 Id = P3,600 Pr = P16,400 Answer: The interest that will be deducted in advance is P3,600 and the borrower will receive P16,400 on the origin date.
Simple Discount
Id = F d t Pr = F - Id
Samson wants to borrow P12,000 payable in two years at 12% discount rate. How much will Samson receive on the origin date? How much will he pay on the maturity date Given: F = P12,000 d = 0.12 Pr = ? t = 2 years Solution: Pr = F ( 1 – d t ) Pr = 12,000 [ 1 – ( 0.12 ) ( 2 ) ]
Pr = F ( 1 dt)
Pr = P9,120 Answer: Samson will get P9,120 out of the P12,000 that he loaned. He will, however pay P12,000 on the maturity date since the interest was already deducted.
Promissory Notes
Simple Interest Note
Is a written promise May 8, 2008 term drawn by a person or an institution (drawer) 30 days after date, I promise to pay to another person or ABC Lending Corporation the sum of four institution (drawee) to thousand three hundred pesos (P4,300) plus a pay a certain amount 12% interest per annum. face value of money at a drawee Mary-Anne Raymundo specified time and interest rate interest rate. maturity date
Two types of promissory notes: • Simple Interest Note • Bank Discount Note
June 7, 2008
drawer
Promissory Notes Is a written promise drawn by a person or an institution (drawer) to another person or institution (drawee) to pay a certain amount of money at a specified time and face value interest rate.
Bank Discount Note term of discount
Sixty (60) days after the above date, the undersigned promises to pay XYZ Bank for the use of ten thousand two hundred pesos (P10,200) at 10% discount rate. drawee discount rate maturity date
Two types of promissory notes: • Simple Interest Note • Bank Discount Note
October 31, 2008
December 30, 2008
Ronnie del Rosario drawer
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Johnson issued a simple interest note worth P15,000 to William on October 12, 2008 which matures after 2 months with an interest rate of 15%. If William decides to sell it to Gina on November 15, 2008, what will be the proceeds of the note if Gina charges 16% interest? Given: P = P15,000 months r = 0.15 0.16 Pr = ?
t = 2 d=
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Given: P = P15,000 months r = 0.15 0.16 Pr = ? Solution: Step 1
t = 2 d=
2 F = P ( 1 + r t ) 1 (0.15) 12 F = 15,000 F = P15,375
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Given: P = P15,000 months r = 0.15 0.16 Pr = ?
t = 2 d=
Solution: Step 2 Discount Date: November 15 Maturity Date: December 12 November (30-15) 15 December
12 27 days
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Given: P = P15,000 t months r = 0.15 d = 0.16 Pr = ? Solution: Step 3 Id = F d t Id = 15,375
=
0.16
27 360
Id = P184.50 Pr = F – Id Pr = 15,375 – 184.50 Pr = P15,190.50 Answer: William will receive P15,190.50 for selling the simple interest note issued to Gina.
2
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A BANK NOTE: 1. Determine the discount period. This is the time from the date the note is discounted to the maturity date. 2. Find the proceeds using the discount rate and the discount
Trake Inc. received a P150,000 bank discount note for 6 months at 5% simple discount. After 2 months, Trake Inc. decides to sell the note to the bank. How much proceeds will Trake Inc. get from the sale of this note? Given: F = P150,000 d = 0.05 Pr = ? Solution: Id = F d t Id = 150,000
Pr = F – I d
4
Pr = 150,000 – 2,500
Id = P2,500 0.05P r = P147,500 12 Answer: Trake Inc. will receive P147,500 from the sale of the bank discount note.
Outline • • • • • •
Simple Interest Exact and Ordinary Interest Actual and Approximate Time Simple Discount Promissory Notes Discounting Promissory Notes
Definition of Lender / Creditor – the person or institution that makes the funds available to those who need it. Borrower – the person or institution that avails of the funds from the lender. Interest – a certain sum of money that the lender charges the borrower for the use of the funds. TYPES OF INTEREST: • Simple Interest • Compound Interest
Simple Interest Three Factors: • Principal • Interest Rate • Time or Term of the loan / investment Formula:
I=Prt I = Interest P = Principal r = rate t = term of the loan in years
• Principal – is the sum of money borrowed or invested. • Interest Rate – is the rate charged by the lender or rate of increase of the investment. – Expressed in decimals • Time or Term of the loan – the number of years the sum of money was borrowed or invested.
Simple Interest Three Factors: • Principal • Interest Rate • Time or Term of the loan / investment Formula:
I=Prt I = Interest P = Principal r = rate t = term of the loan in years
How much interest is charged when P10,000 is borrowed for 2 years with an interest rate of 3%? Given: P = P10,000 r = 0.03 I=? t=2 Solution: I = (10,000)(0.03)(2) I = P600 Answer: The interest charged for the use of P10,000 for 2 years is P600.
Maturity Value or Future - The sum of the principal and the Amount interest Formula:
F=P+I F=P+Prt
F=P(1+ rt)
Lucy borrowed P40,000 from a lending firm that charges 6% per year. How much will she pay the lending firm after 5 years? Given:
P = P40,000 r = 0.06 F=? t=5
Solution: F = 40,000 [ 1 + (0.06)(5) ] F = 40,000 (1.3) F = P52,000 Answer: Lucy will have to pay P52,000 after 5 years.
Simple Interest Two categories: •Exact Interest •Ordinary Interest
number of days te = 365 number of days to = 360
Determine the simple interest earned if P3,500 is invested at 15% interest rate in 245 days, (a) using exact interest; (b) using ordinary interest. Given:
P = P3,500 r = 0.15 I=? t = 245 Solution (a): Ie = P r t e Ie = 3,500 (0.15) 245 Ie = P352.40
365
Answer: The simple interest earned P352.40 using exact interest.
is
Simple Interest Two categories: •Exact Interest •Ordinary Interest
number of days te = 365 number of days to = 360
Determine the simple interest earned if P3,500 is invested at 15% interest rate in 245 days, (a) using exact interest; (b) using ordinary interest. Given:
P = P3,500 r = 0.15 I=? t = 245 Solution (b): Io = P r t 0 Io = 3,500 (0.15) 245 Io = P357.29 360
Answer: The simple interest earned P357.29 using ordinary interest.
is
Maturity Value or Future Two categories: •Exact Interest Amount
•Ordinary Interest
number of days
How much will the maturity value of P5,000 be in 48 days if interest rate is at 20%, (a) using exact interest and (b) using ordinary interest. Given: P = P5,000 r = 0.20 F=? t = 48 Solution (a): F = P ( 1 + r te )
te = 365 number of days to = 360
F = 5,000
48 1 (0.2) 365
F = P5,131.51 Answer: P5,000 will accumulate to P5,131.51 using exact interest.
Maturity Value or Future Two categories: •Exact Interest Amount
•Ordinary Interest
number of days te = 365 number of days to = 360
How much will the maturity value of P5,000 be in 48 days if interest rate is at 20%, (a) using exact interest and (b) using ordinary interest. Given: P = P5,000 r = 0.20 F=? t = 48 Solution (b): F = P ( 1 + r to ) F = 5,000
48 1 (0.2) 360
F = P5,133.33 Answer: P5,000 will accumulate to P5,133.33 using ordinary interest.
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
Find the actual time and approximate time between April 15, 2008 and December 21 of the same year. Given: Origin date: April 15, 2008 Maturity date: Dec. 21, 2008 Actual time = ? Solution (a): Mont h
Apr
May
Jun
Jul
Aug
No. of days
30 – 15 = 15
31
30
31
31
Mont h
Sep
Oct
Nov
Dec
Total
Answer: No. 30 31 30 21 250 of are 250 actual days from There days15, 2008 to December 21, April 2008.
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
Find the actual time and approximate time between April 15, 2008 and December 21 of the same year. Given: Origin date: April 15, 2008 Maturity date: Dec. 21, 2008 Approximate time = ? Solution (b): Mont h
Apr
May
Jun
Jul
Aug
No. of days
30 – 15 = 15
30
30
30
30
Mont h
Sep
Oct
Nov
Dec
Total
Answer: No. 30 30 30 21 246 of are 246 approximate days There days from April 15, 2008 to December 21, 2008.
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest, using a.Exact interest for the approximate time; b.Ordinary interest for the approximate time; c.Exact interest for the actual time; d.Ordinary interest for the F=P(1+rt) actual time?
Actual Time and • Origin date Approximate •Maturity date Time Actual time – is obtained by counting the actual number of days between the two given dates. Approximate time – is obtained by counting the actual number of days between the two given dates but on the assumption that each month has 30 days.
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 F =No ? Tota Mont Jun rJu= 0.15 Au Se Oc h l g p t v l Actual time No. of days
30 – 25 = 5
3 1
31
Mont Jun Ju Au h l g Approximate time No. of
30 – 25 =
3 0
30
30
31
18
146
Se Oc p t
No v
Tota l
30
18
143
30
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (a):Exact interest for the approx. time? F = P ( 1 + r te ) F = 10,000 F = P10,587.67
143 1 ( 0 . 15 ) 365
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (b): Ordinary interest for the approx. time? F = P ( 1 + r to ) F = 10,000 F = P10,595.83
143 1 ( 0 . 15 ) 360
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (c): Exact interest for the actual time? F = P ( 1 + r te )
146 1 ( 0 . 15 ) 365
F = 10,000 F = P10,600
Actual Time and Approximate • Origin date •Maturity date Time Actual time :146 days Approx. time: 143 days
F=P(1+rt)
How much should Mr. Buenaobra pay if he borrowed P10,000 on June 25, 2008 and if the principal plus interest are to be paid on November 18, 2008 at 15% interest? Given: Origin date: June 25, 2008 Maturity date: Nov. 18, 2008 P = P10,000 r = 0.15 F=? Solution (d): Ordinary interest for the actual time? F = P ( 1 + r te ) F = 10,000 F = P10,608.33
146 1 ( 0 . 15 ) 360
Simple Discount
Formula:
Is the simple interest collected or deducted in advance from the amount of loan. Proceeds of the loan,
Id = F d t
Pr
- The amount that is left after the interest is deducted. Three factors: • Maturity value of the loan, F • Discount rate, d • Time/term of the loan, t
Formula:
Pr = F - I d Pr = F – F d t
Pr = F ( 1 - d t )
Simple Discount
Id = F d t Pr = F - Id Pr = F ( 1 dt)
How much interest will be deducted from a loan worth P20,000 after 3 years with a discount rate of 6%? How much will be the proceeds of the loan? Given: F = P20,000 d = 0.06 Id = ? t = 3 years Pr = ? Solution: Id = F d t
Pr = F – I d
Id = 20,000 (0.06)(3) Pr = 20,000 – 3,600 Id = P3,600 Pr = P16,400 Answer: The interest that will be deducted in advance is P3,600 and the borrower will receive P16,400 on the origin date.
Simple Discount
Id = F d t Pr = F - Id
Samson wants to borrow P12,000 payable in two years at 12% discount rate. How much will Samson receive on the origin date? How much will he pay on the maturity date Given: F = P12,000 d = 0.12 Pr = ? t = 2 years Solution: Pr = F ( 1 – d t ) Pr = 12,000 [ 1 – ( 0.12 ) ( 2 ) ]
Pr = F ( 1 dt)
Pr = P9,120 Answer: Samson will get P9,120 out of the P12,000 that he loaned. He will, however pay P12,000 on the maturity date since the interest was already deducted.
Promissory Notes
Simple Interest Note
Is a written promise May 8, 2008 term drawn by a person or an institution (drawer) 30 days after date, I promise to pay to another person or ABC Lending Corporation the sum of four institution (drawee) to thousand three hundred pesos (P4,300) plus a pay a certain amount 12% interest per annum. face value of money at a drawee Mary-Anne Raymundo specified time and interest rate interest rate. maturity date
Two types of promissory notes: • Simple Interest Note • Bank Discount Note
June 7, 2008
drawer
Promissory Notes Is a written promise drawn by a person or an institution (drawer) to another person or institution (drawee) to pay a certain amount of money at a specified time and face value interest rate.
Bank Discount Note term of discount
Sixty (60) days after the above date, the undersigned promises to pay XYZ Bank for the use of ten thousand two hundred pesos (P10,200) at 10% discount rate. drawee discount rate maturity date
Two types of promissory notes: • Simple Interest Note • Bank Discount Note
October 31, 2008
December 30, 2008
Ronnie del Rosario drawer
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Johnson issued a simple interest note worth P15,000 to William on October 12, 2008 which matures after 2 months with an interest rate of 15%. If William decides to sell it to Gina on November 15, 2008, what will be the proceeds of the note if Gina charges 16% interest? Given: P = P15,000 months r = 0.15 0.16 Pr = ?
t = 2 d=
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Given: P = P15,000 months r = 0.15 0.16 Pr = ? Solution: Step 1
t = 2 d=
2 F = P ( 1 + r t ) 1 (0.15) 12 F = 15,000 F = P15,375
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Given: P = P15,000 months r = 0.15 0.16 Pr = ?
t = 2 d=
Solution: Step 2 Discount Date: November 15 Maturity Date: December 12 November (30-15) 15 December
12 27 days
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A SIMPLE INTEREST NOTE: 1. Find the maturity value of the simple interest note. 2. Determine the discount period or discount term. This is the time from the date the note is discounted to the maturity date. 3. Find the proceeds using the discount rate and the discount period.
Given: P = P15,000 t months r = 0.15 d = 0.16 Pr = ? Solution: Step 3 Id = F d t Id = 15,375
=
0.16
27 360
Id = P184.50 Pr = F – Id Pr = 15,375 – 184.50 Pr = P15,190.50 Answer: William will receive P15,190.50 for selling the simple interest note issued to Gina.
2
Discounting Notes the procedure of selling the notes to individuals or other institutions before its maturity date. STEPS IN DISCOUNTING A BANK NOTE: 1. Determine the discount period. This is the time from the date the note is discounted to the maturity date. 2. Find the proceeds using the discount rate and the discount
Trake Inc. received a P150,000 bank discount note for 6 months at 5% simple discount. After 2 months, Trake Inc. decides to sell the note to the bank. How much proceeds will Trake Inc. get from the sale of this note? Given: F = P150,000 d = 0.05 Pr = ? Solution: Id = F d t Id = 150,000
Pr = F – I d
4
Pr = 150,000 – 2,500
Id = P2,500 0.05P r = P147,500 12 Answer: Trake Inc. will receive P147,500 from the sale of the bank discount note.
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