ILLUSTRATED SOLUTION

375. Problem: What is the balance due July 1, 1916, on a note of $1200, dated January 1, 1914, upon which the following payments have been made: June 24, 1914, $250; August 16, 1914, $100; July 8, 1915, $40; January 1, 1916, $300?

180 Int. to July 1, 1916, 2 yr. 6 mo. $1380

30.29 Int. to July 1, 1916, 2 yr. 7 da.
Paid Aug. 16, 1914

100.

11.25 Int. to July 1, 1916, 1 yr. 10 mo. 15 da. Paid July 8, 1915

40.

$637.11 Balance due July 1, 1919.

A $1200 note given January 1, 1914, would earn $180 interest to July 1, 1916, making its value at maturity $1380. $250 paid June 24, 1914, would earn $30.29, interest to July 1, 1916, a period of 2 years 7 days. $100 paid August 16, 1914, would earn $11.25 to July 1, 1916. $40 paid on July 8, 1915, would accrue $2.35 interest to July 16, 1916. $300 would accrue $9 interest to July 1, 1916. The payments and accrued interest amount to $742.89. The value of the note at maturity, $1380, minus the payments and accrued interest $742.89, leaves $637.11 due on July 1, 1916. NOTE. For practice problems in partial payments (Merchants' Rule) see par. 62.

BANK DISCOUNT

376. Bank Discount is the charge made by a bank for cashing an obligation before it is legally due. It is the interest on the amount due at maturity for the unexpired time.

377. The Maturity of a debt is the date upon which it becomes legally due.

(a) A few states allow three days in addition to the time mentioned in a note or draft. These are called days of grace.

(b) Most states allow days of grace on sight drafts only.

378. The Term of Discount is the number of days between the date of discount and the date of maturity.

379. The Bank Discount is the interest on the amount due at maturity for the term of discount.

380. The Proceeds is the difference between the amount due at maturity and the bank discount. It is the cash value of the debt on the date of discount.

381. To Find the Proceeds: Find the date of maturity. Ascertain the amount due at maturity. Find the time in exact days from the date of discount to the date of maturity. Compute the interest on the amount due at maturity for this time. The result will be the bank discount. Deduct the bank discount from the amount due at maturity. The result will be the proceeds.

ILLUSTRATED SOLUTIONS

382. Problem: Find the bank discount and the proceeds of a note for 60 days for $5000, dated March 3, 1916, discounted April 1, 1916, at 5%.

March 3, 1916+60 days=May 2, 1916=date of maturity.

April 1, 1916, to May 2, 1916 31 days=term of discount.

21.5278 5% Bank Discount count. The interest on

$5000.

21.53

$4978.47 Proceeds

Ans. $4978.47.

$5000 for 31 days at 5% is $21.53. This is the bank discount. The face of the note was $5000, the bank discount $21.53; the net proceeds would be the difference, $4978.47.

NOTE. For practice problems in finding the bank discount and proceeds of non-interest-bearing notes see par. 63.

383. Problem: Find the bank discount and proceeds of a sixty-day note for $5000, dated January 1, 1915, bearing interest at 6%, discounted February 6, 1915, at 5%.

January 1, 1915+60 days = March 2, 1915

February 6, 1915, to March 2, 1915=24 days

A note, dated January 1, 1915, to run 60 days would fall due on March 2, 1915. If it were discounted on February 6, 1915, it would then have 24 days to run. The term of discount, therefore, is 24 days. As this note is given with interest, its face value, plus 60 days' interest on $5000, is $5050. As the amount due at maturity is $5050, the bank discount would be figured on this amount for 24 days at 5%, which is $16.83. The

amount due at maturity being $5050 and the bank discount $16.83, the net proceeds would be the difference, or $5033.17.

NOTE. For practice problems in finding the bank discount and proceeds of interest-bearing notes see par. 64.

384. In making a loan at a bank when a definite amount is desired, the note must be made for a sum that, when discounted, will leave as the net proceeds the amount of loan desired.

To Find the Sum for Which a Note Must Be Drawn So That, if Discounted at Date, the Proceeds Will Be a Given Sum: Find the proceeds of a note for $1 for the given time at the given rate. Divide the given proceeds by this. The quotient will be the face required.

The divisor must be absolutely correct. $1 to the third place and retain all fractions.

Carry the discount on

ILLUSTRATED SOLUTION

385. Problem: For what sum must a ninety-day note be drawn so that if discounted on its date at 41% the proceeds may be $1875?

NOTE. For practice problems in finding the sum for which a note must be drawn so that if discounted at date the proceeds will be a given sum, see par. 65.