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252. When a man borrows money at a bank he gives his note for a specified sum to be paid at a specified time and he receives therefor, not the sum named in the note, but that sum less the interest upon it from the time the note is given to the bank officials to the time the note is due.
253. The acceptance of a note by the bank officials and the payment of a sum less than it will be worth at maturity* is called “discounting the note." 254. The proceeds of a note is the sum paid for it.
As a rule, the notes discounted at a bank are those which bear no interest, and the date of discounting is usually the same as the date of the note, though not necessarily so.
Find the discount and proceeds of the following:
JACKSONVILLE, ILL., Jan. 10, 1898. Sixty days after date I promise to pay James Rice or order, eight hundred dollars, value received.
ARTHUR WILLIAMS. Discounted at 6%, Jan. 10, 1898.
From the date of discount to the date of maturity it is 60 days. Interest of $800 for 60 days = $8.00.
Proceeds of note = $800 – $8 $792.
Observe that the bank receives the interest on $800 for two months at 6% for the use of $792 for two months. The actual rate of interest is therefore a little more than the rate named.
* The date of maturity is the day upon which the note is legally due.
255. PROBLEMS IN BANK DISCOUNT.
CHICAGO, ILL., Apr. 5, 1898. Thirty days after date I promise to pay to the order of John Smith, three hundred seventy-five dollars, at the Union National Bank. Value received.
JAMES WHITE. Discounted April 5, at 6 %. Find proceeds.
AURORA, ILL., March 10, 1898. Sixty days after date I promise to pay to Wm. George, or order, four hundred fifty dollars, at the Old Second National Bank. Value received.
FAY D. WINSLOW. Discounted March 10, at 7 %. Find proceeds.
WAUKEGAN, ILL., Feb. 9, 1898. Ninety days after date I promise to pay to the order of John Mulhall, two thousand three hundred dollars, at the Security Savings Bank. Value received.
CHAS. WHITNEY. Discounted Feb. 9, at 7 %. Find proceeds.
SERENA, ILL., Jan. 20, 1898. Sixty days after date, I promise to pay to John Parr, or order, five thousand dollars. Value received.
HARRY BROWN. Discounted Jan. 20, at 7 %. Find proceeds.
Boston, MASS., April 12, 1898. Sixty days after date I promise to pay to W. J. But. ton, or order, three thousand five hundred dollars. Value received.
HARRY WILSON. Discounted Apr. 24, at 6 %. Find proceeds.
256. THE DISCOUNTING OF INTEREST-BEARING NOTES.
Whenever a note is presented at a bank to be discounted, its value at maturity is regarded as the sum upon which the discount is to be reckoned. When the note is not interest bearing, its face value * is its value at maturity. In the discounting of short-time notes at banks it is customary to find the exact number of days from the date of discounting to the date of maturity, and to regard each day as 1/360 of a year.
AUSTIN, ILL., Jan. 1, 1898. Six months after date I promise to pay to the order of N. D. Gilbert, seven hundred fifty dollars, with interest at the rate of six per cent per annum.
0. T. BRIGHT. Discounted at a bank, May 10, 1898, at 7 %.
Value of the note at maturity, $772.50
TOPEKA, KANSAS, Dec. 10, 1897. Five months after date, I promise to pay to the order of J. C. Thomas, five hundred forty dollars, with interest at the rate of six per cent per annum. HIRAM BAKER.
Discounted at a bank, April 1, 1898, at 7 %.
EARLVILLE, ILL., Feb. 1, 1898. Six months after date, I promise to pay to the order of Wm. R. Haight, three hundred twenty-five dollars, with interest at the rate of six per cent per annum.
CHAS. Hoss. Discounted at a bank, June 1, 1898, at 7 %.
* The face value, or “face," of a note is the value shown upon its face—the sum of money expressed in words in the body of the note.
257. PARTIAL PAYMENTS ON NOTES. A partial payment is a part-payment made upon a note before the time of final settlenient.
There are two methods in common use of finding the value of a note at maturity, upon which one or more partial payments have been made. The first method is often applied to computation of "shorttime notes," such as run one year or less. A formal statement of this method is called the
Merchants' Rule.—Find the amount of the face of the note from the date to maturity. Then find the amount of each payment from the time it was made to the maturity of the note. From the amount of the face of the note subtract the sum of the amounts of the payments.
WAUKEGAN, ILL., Jan. 1, 1897.
$ 58.50 1. $1000.00.
SPRINGFIELD, ILL., Jan. 1, 1898. Eight months after date I promise to pay to the order of Fred H. Wines, one thousand dollars, with interest at six per cent. Value received.
J. H. FREEMAN.
Part payments were made upon this note as follows: Apr. 1, 1898, $350 ; June 15, 1898, $240.
How much was due on this note at maturity, Sept. 1, 1898 ?
Promissory Notes. 258. A decision of the United States Supreme Court many years ago, led to the very general adoption in the solution of ' partial payment problems," of what is now known as the United States Rule. Find the amount of the principal at the time of the first payment. Subtract the first payment from this amount. The remainder is a new principal, upon which find the amount at the time of the second payment. Subtract the second payment from this amount. Continue this process to the time of settlement. The last amount is the sum due.
An exception to the foregoing rule is required when there is a payment which is less than the interest due at the time the payment is made. In such case the payment is treated as though made at the time of the next payment; and if the two payments together do not equal the interest due, the sum of both is again carried forward. $950.
PETERSBURG, ILL., Jan. 1, 1895. On or before Jan. 1, 1898, I promise to pay to N. W. Branson, or order, nine hundred fifty dollars, with interest at six per cent. Value received.
B. LANING. Part payments were made on this note as follows: July 1, 1895, $150; Jan. 1, 1896, $200 ; Jan. 1, 1897, $250. Find the amount due Jan. 1, 1898. Amount of $950, July 1, 1895 (6 mo.)
New principal $828.50
Subtract second payment 200.00
New principal $653.35
Subtract third payment 250.00
New principal $442.55