4'2 Discounted Promissory Notes

1
4.2 Discounted Promissory Notes
2
Discounted Promissory Notes short-term loan
(30, 60, 90 days usually)

• Bank Discount pay interest up-front on
  short-term loan, so promissory note does not show
  an interest rate (non-bearing note)
• Bank Discount (principal) (rate) (time)
• Proceeds principal bank discount

Proceeds is amt of borrower gets to take home
3
Example 1

• A lender discounted a 3500 note for Risa DeWitt
  at 15 interest for 3 months. Find the proceeds
  of the note that Risa receives

4
True Rate of Interest
Bank Discount
Proceeds
5
Example 2

• Find the true rate of interest, rounded to the
  nearest tenth of a percent, on Risa DeWitts note
  in Example 1

6
Wrap It Up