1 / 21

# Ch 9 Simple Interest

Ch 9 Simple Interest. Simple Discount Notes. Notes. Notes are short term loans. Simple Interest Notes Section 1 Simple Discount Notes This section…. Simple Interest Notes. One year simple interest note @ 6.25% for \$2000. Borrower receives the face value = \$2000.

## Ch 9 Simple Interest

E N D

### Presentation Transcript

1. Ch 9 Simple Interest Simple Discount Notes

2. Notes • Notes are short term loans. • Simple Interest Notes • Section 1 • Simple Discount Notes • This section…

3. Simple Interest Notes • One year simple interest note @ 6.25% for \$2000. Borrower receives the face value = \$2000 Interest is computed to be \$125. Borrower must pay back \$2125 on the maturity date of the loan. \$2000 \$ \$2,125 \$2,000

4. Simple Discount Notes • One year simple discount note @ 6.25% for \$2000. Interest is computed and immediately deducted (discounted) from the face value: \$125 Bankdiscount Borrower walks out with: \$1,875 proceeds Borrower must pay back \$2,000 on the maturity date of the loan. \$ \$2,000 \$1,875

5. Comparison 1-year loan of \$2,000 loan at 6.25%. \$2,000 \$2,000 Interest: \$125 Bank Discount: \$125 I = PRT B = MDT \$2,000 \$1,875 Principle Proceeds \$2,125 \$2,000

6. Using the Terminology 1 of 2 • Simple discount note of \$4300. • Bank Discount is \$285 \$4,300 Face Value = __________ \$285 Bank Discount = __________ \$4,015 \$4,300 - \$285 Proceeds = __________ \$4,300 Maturity Value = __________

7. Using the Terminology 2 of 2 • Simple discount note of \$12,500. • Bank discount is \$750 \$12,500 Face Value = __________ \$750 Bank Discount = __________ \$11,750 \$12,500 - \$750 Proceeds = __________ \$12,500 Maturity Value = __________

8. Ch 9 Simple Discount Notes Determine the bank discount and the proceeds.

9. Simple Discount Note \$2000 6% discount rate 90 days Bank Discount Sample Problem 1 • Bank Discount = Maturity Value x Discount Rate x Time • B = MDT Maturity Value _____ discount \$30 Discount Rate _____ proceeds Time (years) 90 360 B = \$2000 x .06 x B = \$30

10. Simple Discount Note \$2000 6% discount rate 90 days \$30 discount Proceeds Sample Problem 1 Continued • Proceeds = Maturity Value - Bank Discount • P = M - B P = \$2000 - \$30 _____ proceeds \$1970 P = \$1970

11. Simple Discount Note \$800 4.5% discount rate 120 days \$______ discount Bank Discount Practice Problem • Determine the bank discount: B = MDT 120 360 B = \$800 x .045 x 12 \$______ proceeds B = \$12

12. Sample Practice Problem • Determine the proceeds: Simple Discount Note P = M - B \$800 4.5% discount rate P = \$800 - \$12 120 days \$12 discount P = \$788 788 \$_____ proceeds

13. Compute Discount and Proceeds 1 of 1 • Simple discount note with a face value of \$14,250. • It is an 8 month note at 8%. • Discount = _______ • Proceeds = _______ B = MDT P = M - B 8 12 B = 14,250 x 0.08 x = \$760 P = 14,250 – 760= \$13,490

14. Practice • Ch 9, Section 3 – Simple Discount Notes Textbook Exercise 9.3 (pages 371 – 374) _____ #3 – 6, 8 – 12, 14

15. Ch 9 Simple Discount Notes Computing the face value

16. Simple Discount Note \$5800 5.75% discount rate 180 days \$166.75 discount \$5633.25 proceeds Finding Face Value • A person needs to borrow \$5800 to pay for home improvements. • Would a simple discount note with a face value of \$5800 meet their needs?

17. Deriving the Formula for M B = MDT P = M – P = M – MDT B P = M(1 – DT) 1 – DT 1 – DT P = M 1 – DT

18. Simple Discount Note \$5800 5.75% discount rate 180 days \$________ discount \$________ proceeds Computing Face Value to Achieve Desired Proceeds Proceeds received by the borrower. Time of the loan (years) Discount rate used by the bank (%) \$5,971.69 171.69 5800

19. Computing Face Value 1 of 2 • #20, page 372 • Lane Engineering needs \$120,000 to install computers and network. The simple discount note has a 9.5% rate and matures in 80 days. • Find the face value of the loan.

20. Computing Face Value 2 of 2 • #26 part (a), page 373 • A Malaysian electric company requires proceeds of \$720,000 and borrows from a bank in Thailand at 12% discount for 45 days. • Find the face value of the loan.

21. Practice • Ch 9, Section 3 – Simple Discount Notes Textbook Exercise 9.3 (pages 371 – 374) _____ #20, 25, 26

More Related