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2.2 Bank Discount & Promissory Notes

This document contains examples of calculating values related to promissory notes such as: - Term, maturity date, maturity value, face value, proceeds, discount, and equivalent discount rates. It provides step-by-step workings for determining these values given information about the promissory note terms, interest rates, discount rates, and dates.

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379 views4 pages

2.2 Bank Discount & Promissory Notes

This document contains examples of calculating values related to promissory notes such as: - Term, maturity date, maturity value, face value, proceeds, discount, and equivalent discount rates. It provides step-by-step workings for determining these values given information about the promissory note terms, interest rates, discount rates, and dates.

Uploaded by

hariz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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MAT112 BUSINESS MATHEMATICS

CHAPTER 3 (BANK DISCOUNT &PROMISSORY NOTE)

1. Aileen received a promissory note dated 12th February 2012 with a simple interest rate
of 7.5%. the note will be mature on 11th June 2012. After she kept the noted for 75 days,
she sold the note to a bank at a discount rate of 6.4% and received proceeds of
RM6,914.24. Find
i) the term of the note [120 days]
12/2-29/2=17
1/3-31/3=31(48)
1/4-30/4=30(78)
1/5-31/5=31(109)
1/6-11/6=11(120)
Term of note:120 days

ii) the maturity value [RM6970]


120-75=45days

𝟒𝟓
6914.24=S[1- 0.064(𝟑𝟔𝟎)]
6914.24=S(1-0.008)
S=RM6,970

iii) the face value [RM6800]


𝟏𝟐𝟎
6970=P[1+ 0.075(𝟑𝟔𝟎)]
6970=P(1.025)
P= RM6800

iv) the amount of interest received by Aileen [RM114.24]


RM6914.24-RM6800= RM114.24

v) the discount rate equivalent to the given interest rate. [7.32%]


𝟎.𝟎𝟕𝟓
d= 𝟏𝟐𝟎
𝟏+𝟎.𝟎𝟕𝟓( )
𝟑𝟔𝟎
𝟎.𝟎𝟕𝟓
d=𝟏.𝟎𝟐𝟓 × 100
d=7.32%

(Q1(c) Oct 2012)

FSKM/UiTM TERENGGANU Page 1


2. Hisham received a 130-day promisoory note with maturity date 12 July 2008 at 6.5%
simple interest. 34 days before the maturity date, hisham discounted the note at a bank
at 5.2% discount rate and received a bank discount of RM42.50. Find
i) the date of the note [4 March 2008]
12/7-1/7=12(130-12=118)
Jun=30(118-30=88)
May=31(88-31=57)
April=30(57-30=27)
March=31-27=4

4th March 2008

ii) the maturity value [RM8653.85]


𝟑𝟒
42.50=S[0.052( )]
𝟑𝟔𝟎
S=8653.85

iii) the proceeds [RM8611.35]


𝟑𝟒
P=8653.85-[1-0.052(𝟑𝟔𝟎)]
P=RM8611.35

iv) the face value [RM8455.38]


𝟏𝟑𝟎
8653.85=P[1+0.065( )]
𝟑𝟔𝟎
P=RM8455.38

v) the number of days the note was kept by Hisham before it was sold to the bank.
[96 days]
130-34=96day
(Q1(c) April2012)

3. A 216-day, 6% promissory note with a face value of RM6,000 was discounted 76 days
before the maturity date at 4.5% discount rate. If the date of the note was 4th June 2010,
calculate
i) the discount date (22/10)
216-76=140
4/6-30/6=26(140-26=114)
July=31(114-31=83)
August=31(83-31=52)
September=30(52-30=22)
1/10-22/10=22

22 October 2010

FSKM/UiTM TERENGGANU Page 2


ii) the maturity date of the note (6 Jan 2011)
22/10+76days
22/10-31/10=9(76-9=67)
November=30(67-30=37)
December=31(37-31=6)
1/1-6/1=6
6 January 2011

iii) the maturity value of the note (RM6216)


𝟐𝟏𝟔
S=6000[1+0.06( )]
𝟑𝟔𝟎
S=RM6216

iv) the amount of the proceeds (RM6156.95)


𝟕𝟔
S=6216[1-0.045(𝟑𝟔𝟎)]
S=RM6156.95

v) the amount of discount (RM59.05)


RM6216-RM6156.95= RM59.05
(Q1(c) Sept2011)

4. Rimba Bara is a rock band who plans to record their album and sells their DVD’s to their
fans. On 19/3/2010 they decide to sign a promissory note with a recording company,
Rock & Roll Recording Studio with a face value of RM8,000 at 7% interest rate. The note
will mature on 16/8/2010. However, on 7/7/2010, Rock & Roll Recording Studio decides
to sell their note to a bank with a bank discount of RM110.33 at 9% discount rate. Find
i) Who is the payee of the note?
RImba Bara is the payee of the note.

ii) Find the term of the note


19/3-31/3=22
April=30(22+30=52)
May=31(52+31=83)
Jun=30(83+30=113)
July=31(113+31=144)
1/8-16/8=16(144+16=160)
160days

iii) Find the maturity value of the note


𝟏𝟔𝟎
S=8000[1+0.07(𝟑𝟔𝟎)]
S=RM8320

FSKM/UiTM TERENGGANU Page 3


iv) How much is the proceeds received by the Rock & Roll Recording Studio?
P=8320-110.33
=RM8209.67

v) Find the interest rate that is equivalent to the discount rate.


𝟎.𝟎𝟕
d= 𝟏𝟔𝟎
𝟏+𝟎.𝟎𝟗( )
𝟑𝟔𝟎

𝟎.𝟎𝟕
=𝟏.𝟎𝟒 ×100
=6.73%
(Q3(c) April 2011)

5. Emina received a 120-day promissory note on 12th January 2010 with an interest rate of
4% per annum of simple interest. After 62 days, she discounted the note at a discount
rate of 2% and received proceeds of RM11000.50. Find
i) the maturity date. (12 May 2010)
12/1-31/1=19(120-19=101)
February=28(101-28=73)
March=31(73-31=42)
April=30(42-30=12)
1/5-12/5=12
12 May 2010

ii) the maturity value. (RM 11036.06)


𝟓𝟖
11000.50=S[1-0.02(𝟑𝟔𝟎)]
S=RM11036.06

iii) the face value. (RM10890.85)


𝟏𝟐𝟎
11036.06=P[1+0.04(𝟑𝟔𝟎)]
11036.06=P(1.013)
P=RM10890.85

iv) the amount of interest received by Emina. (RM109.65)


RM11000.50-RM10890.85=RM109.65

(2(c) oct2010)

FSKM/UiTM TERENGGANU Page 4

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