Simple Discount Note

Simple Discount Note Formula Morrison Pet Supply Company Simple Discount Note December 31, 20XX Bank Discount for a Simple Discount Note: Formula: Bank discount (Interest) = Maturity Value X Bank Discount Rate X Time of Note. Maturity Value: $7,000 Bank Discount Rate: 5% Time: 13/52 in weeks $7,000 X .05 X 13/52 = $87.50 Bank discount (Interest) To calculate the bank discount multiply the maturity value of the note time the rate time the weeks divided by 52 weeks and you will get the bank discount (Interest) for the note. Proceeds from Simple Discount Note: Formula: Maturity Value – Bank discount (Interest) = Proceeds Maturity Value: $7,000 Bank Discount: $87.50 $7,000 – $87.50 = $6,912.50 Proceeds To calculate the proceeds take the maturity value and subtract the bank discount (interest) which will give you the proceeds. Note: The Borrower will receive the proceeds at the time the note is taken out and will pay back the maturity value when the loan is due to be paid back to the lender. A good example of a simple discount note is a Treasury bill, such as the one to the left, in which case the general public or companies, who buys the Treasury Bills, are the lenders and the government is the borrower.

MJC Revised 1/2012

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