Section 9.4

1. Section 9.4 Discounting a Note Before Maturity

2. Discount a note… • When a simple interest loan (promissory note) is sold to a bank before it reaches maturity.

3. Find the proceeds when discounting simple interest notes • 1. Start with the Simple Interest Note: • Find the due date of the original note. • Find the Maturity Value • (use M = P + I and I = P x R x T)

4. 2. Next, discount the simple interest note: • Find the discount period (The # of days from the sale of the note to the original due date) • Find the Discount of the note. (B = M x D x T) • Find the Proceeds (P = M – B)

5. A simple interest note has a face value of $14,000; a rate of 9%, and a time to maturity of 240 days. It is discounted after 80 days at a rate of 11%. Find the maturity value of the simple interest note and the proceeds at the time of the discount.

6. On March 27, Dayton Finance loans Jorge Rivera $9200 for 150 days at 11% simple interest. The finance company sells the note to a private investor on April 24. Find the maturity value of the simple interest note and the proceeds to Dayton Finance if the note sold at a discount rate of 12%

7. Find the Proceeds when discounting simple discount notes • 1. For the simple discount note, find: • The due date of the original note. • The discount (B = M x D x T) • The proceeds (P = M – B) • Remember: For a simple discount note, Maturity Value = Face Value!

8. 2. Then, discount the simple discount note: • Find the discount period • (# of days from the sale of the note to the original due date) • Find the discount of the note (B = M x D x T) • Find the proceeds (P = M – B)

9. A 240-day discount note has a maturity value of $24,000 and a discount rate of 8%. It is sold after 100 days at a discount rate of 10.5%. Find the maturity value of the original discount note and the proceeds at the time of sale.