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BANK DISCOUNT.

261. It is customary for Banks in discounting a note or draft, to deduct in advance the legal interest on the given sum from the time it is discounted to the time when it becomes due.

Bank discount, therefore, is the same as simple interest paid in advance. Thus, the bank discount on a note of $106 payable in 1 year, is $6.36, while the true discount is but $6. (Art. 260.)

OBS. 1. The difference between bank discount and true discount, is the interest of the true discount for the given time. On small sums for a short period this difference is trifling, but when the sun is large, and the time for which it is discounted is long, the difference is considerable.

2. Taking legal interest in advance, according to the general rule of law, usury. An exception is generally allowed, however, in favor of notes, drafts &c., which are payable within a year.

The Safety Fund Banks of the State of New York, though the legal rate of interest is 7 per cent., are not allowed by their charters to take over 6 per cent. discount in advance on notes and drafts which mature within 63 days from the time they are discounted.*

262. According to custom, a note or draft is not presented for collection until three days after the time specified for its payment. These three days are called days of grace. It is customary to charge interest for the days of grace. The banks, therefore, always calculate the interest for 3 days more than the time stated in the note.

13. What is the bank discount on a note of $500, payable in 1 year, at 6 per cent. ? What is the present worth?

QUEST. 261. How do banks usually reckon discount? What in effect is bank discount? Obs. What is the difference between bank discount and true discount? Is this difference worth noticing? How is taking interest in advance generally regarded in law? What exception to this rule is allowed? 262. When is it customary to present notes and drafts for collection? What are these 3 days called? Is it customary to charge interest for the days of grace?

*Revised Statutes of New York, Vol. III., p. 287.

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And the present worth is $500-$30.25-$469.75.

14. What is the bank discount on a draft of $250, payable in 4 months, at 7 per cent. ?

15. What is the bank discount on a draft of $375 for 30 days, at 6 per cent.?

16. What is the bank discount on a note of $1000, payable in 60 days, at 5 per cent. ?

17. What is the present worth of $1160, payable in 90 days, discounted at a bank at 6 per cent.?

18. What is the present worth of $750.36, payable in 5 months, at 4 per cent.?

19. What is the bank discount of $1825.60, payable in 4 months and 15 days, at 6 per cent. ?

20. What is the present worth of a draft of $1292, payable in 60 days, at 7 per cent. discount?

21. What is the present worth of a draft of $5000, payable in 15 days, at 6 per cent. discount?

22. What is the present worth of a draft of $15000, payable in 3 days, at 6 per cent. discount?

23. What is the present worth of $1326, payable in 10 months, at 5 per cent. discount?

24. What is the bank discount, at 7 per cent., on a note of $836.81, payable in 90 days?

25. What is the bank discount, at 8 per cent., on a draft of $1261.38, payable in 60 days?

26. What is the bank discount, at 6 per cent., on a draft of $10000, payable in 30 days?

27. What is the difference between the true discount and bank discount on $1000, payable in 5 years, at 6 per cent. ?

28. What is the difference between the true discount and bank discount on $100000, payable in 1 year, at 7 per cent.?

INSURANCE.

263. By Insurance is meant security against loss or damage of property by fire, storms at sea, and other casualties. This security is usually effected by contract with Insurance Companies, who, for a stipulated sum, agree to restore to the owners the amount insured on their houses, ships, and other property, if destroyed or injured during the specified time of insurance.

264. The written instrument or contract is called the Policy.

The sum paid for insurance is called the Premium.

The premium paid is a certain per cent. on the amount of property insured for 1 year, or during a voyage at sea, or other specified time of risk. Hence,

265. To compute Insurance for 1 year, or the specified time.

Multiply the sum insured by the given rate per cent. as in interest. (Art. 237.)

OBS. 1. Insurance on ships and other property at sea is sometimes effected by contract with individuals. It is then called out door in

surance.

2. The insurers, whether an incorporated company or individuals, are often termed underwriters.

Ex. 1. How much premium must a mechanic pay annually for the insurance of his shop and tools worth $350, at 1 per cent. ?

Solution. $350.015-$5.25. Ans.

2. What amount of premium must be paid annually for insuring a house worth $875, at per cent. ?

?

3. Shipped a box of books, valued at $1000, from New

QUEST.-263. What is Insurance? 264. What is meant by the policy The premium? 265. How is insurance computed? Obs. When insurance is effected with individuals, what is it called? What are the insurers sometimes called?

York to New Orleans, and paid 14 per cent. insurance : what was the amount of premium?

4. A powder mill worth $925, was insured at 15 per cent. what was the annual amount of premium?

:

5. A merchant shipped a lot of goods worth $1560 from Boston to Natchez, and paid 13 per cent. insurance : what amount of premium did he pay?

6. A gentleman obtained a policy of insurance on his house and furniture to the amount of $2500, at 34 per cent. per annum: what premium did he pay a year?

7. A man owning a sixteenth of a whale ship, which cost him $2750, got it insured at 7 per cent. for the voyage: how much did he

pay

?

8. The owner of a schooner worth $3800, obtained insurance upon it, at 5 per cent. for the season: what amount of premium did he pay?

9. A crockery merchant having a stock of goods valued at $7500, paid 2 per cent. for insurance: how much premium did he pay a year?

10. A merchant shipped $3765 worth of flour from Cincinnati to New York, and paid 13 per cent. insurance: how much premium did he pay?

11. What is the annual premium for insuring a store worth $7350, at per cent.?

12. An importer effected insurance on a cargo of tea worth $65000, from Canton to Philadelphia, at 3 per cent. how much did his insurance cost him?

13. A manufacturer obtained insurance to the amount of $76500 on his stock and buildings, at 4 per cent: how much premium did he pay annually?

14. A policy was obtained on a cargo of goods valued at $95600, shipped from Liverpool to New York, at 24 per cent. what was the amount of premium ?

15. The owners of the whale ship George Washington obtained a policy of $58000 on the ship and cargo, at 7 per cent. for the voyage: what was the amount of premium?

16. A gentleman paid $60 annually for insurance on his house and furniture, which was 2 per cent. on its value: what amount of property was covered by the policy?

Note. This example is similar to those of Problem III, in interest. (Art. 254.)

Solution. Since the rate of insurance is 2 per cent, or .02, it is plain that $60 is of the amount insured. Now if $60 is 100, 100 is half as much, or $30; and 100 is $30 x 100, or $3000. Or thus: 60.02-3000.

TOO

Ans. $3000.

PROOF.-$3000 x .02-$60, which was the annual premium paid.

17. If I pay $250 premium on silks from Havre to New York, at 1 per cent., what amount of property does my policy cover?

18. A merchant paid $1200 premium, at 2 per cent. on a ship and cargo from London to Baltimore, which was lost on the voyage: what amount should he recover from the Insurance Company?

19. If a man pays $60 premium annually for the insurance of his house, which is worth $3000, what rate per cent. does he pay?

Note. This example is similar to those of Problem II, in interest. (Art. 253.)

Solution. $60-$3000.02. Ans. 2 per cent.

PROOF.-$3000 ×.02-$60, which is the premium

paid.

20. A merchant paid $40 premium for insuring $5000 on his stock what rate per cent. did he pay?

21. If a man pays $75 for insuring $15000, what rate per cent. does he pay ?

22. If the owner pays $2800 for insuring a ship worth $40000, what rate per cent. does he pay?

23. A blacksmith owns a shop worth $720: what amount must he get insured annually, at 10 per cent., so that in case of loss both the value of the shop and the premium may be repaid?

Analysis. Since the rate of insurance is 10 per cent., on a policy of $100, the owner would actually receive but $90; for he pays $10 for insurance. The question then resolves itself into this: $720 is of what sum ?

100

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