If these were the missing questions:
a)Explain the difference between a simple interest note and a simple discount note.
We can identify the difference between these two by using formula:
Simple Interest Note:
Interest = Face value or Principal * Rate * Time
Maturity Value = Principal + Interest
Proceeds = Principal
Effective Rate = Rate / (Proceeds * time)
Simple Discount Note:
Interest = Face Value or Principal * Rate * Time
Maturity Value = Face Value
Proceeds = Maturity Value - Bank Discounts
Effective Rate = Rate / (Proceeds * time)
In simple interest note, the borrower will have to pay for the principal plus the interest. In simple discount note, since the proceeds has already been net of discount, the borrower will pay for the face value of the note.
b)Exact time (days) of note: __________
July has 31 days. July 28 is the start of the loan.
August has 31 days.
September has 30 days. September 10 is the payment of the loan.
31-27 = 4 days for July
4 days for July + 31 days for August + 10 days for September = 45-day term of the note.
c)What is the bank discount?
Interest = Principal * Rate * term
Interest = 10,000 * 0.055 * 45/360 = 68.75
The bank discount is 68.75
d)What are the proceeds Joan receives?
If Simple Interest Note, Joan receives $10,000.
If Simple Discount Note, Joan receives $9,931.25 → (10,000 - 68.75)
e)What is the amount Joan repays?
If Simple Interest Note, Joan will pay $10,068.75
If Simple Discount Note, Joan will pay $10,000
