Families with great fortunes can have large incomes even with money let out on a low rate of interest. The following table shows rates of interest allowed in various states. First is given the legal rate, then the contract rate (allowed only when a written contract is made between the parties). The cross (+) means any rate can be made by contract. Before taking up Bank Discount it is important that the pupils know something of banks and banking. Read the subject in any up-to-date encyclopedia, that you may be informed yourself. Talk it over with a practical banker, if possible. Speak of the kinds of banks and the advantage of a bank of deposit. Procure a five-dollar bill issued by a local bank and talk about it, telling the pupil who made it, where it was made, etc. Speak of the reason why the failure of a bank does not make its notes void. Have the pupil write out a check. If a man borrows money of another and gives his note for the same, he pays both the principal and the interest when due. But, if one pays a debt by giving a note and the one who gets the note wants to realize money on it at the bank, he gets the full sum minus the interest for the given time, or the proceeds. Mr. Brown owes Mr. Gray $240. He has no ready money, so he gives his note to Mr. Gray for 2 months at 10%. Suppose Mr. Gray wants the ready money on the same day. He takes it to the bank and discounts it, that is, he sells the note and gets the $240 minus the interest, or $236. The date he presents it for discount is the date of discount. On the date of discount, Mr. Gray gets $236 from the bank. But, suppose Mr. Gray waited 30 days before he needed the money. Then the bank would have discounted only for 1 month instead of 2, and Mr. Gray would have received $238. The Term of Discount is the time between the date of discount and the date of maturity. It includes the date of maturity. The Date of Maturity is the date on which the note is legally due. It is then, the last day of grace. The Date of Discount is the date on which the note is sold. The Proceeds are the value of the note minus the bank discount. Bank Discount is simple interest reckoned on the face of a note from the date of discount to the date of maturity. Fix these facts in mind: 1. The face of the note is the amount to be discounted. 2. The face of the note is the amount due at maturity. If the note bears interest, it is the amount of principal and interest to the date of maturity. If the note does not bear interest, the principal is the face of the note. 3. The bank discount is simple interest on the face of the note. 4. The face of the note minus the bank discount gives the proceeds. THE DATE OF MATURITY. To find the date of maturity: a. If a certain date in a month is given, then count by months, figuring 1 month as the time to the same date in the next month. b. If the time is expressed in days, *count the exact number of days to maturity. c. In some states the day of discounting is added into the term of discount as well as the date of maturity. *Use the table on Exact Time. PROBLEMS. 1st Case Note not bearing interest. PROBLEM: Find the bank discount, time to run, and proceeds of the following: A note of $200, dated Jan. 1, 1900, time 4 mo., discounted March 5, 1900, at 10%. WORK: I. The date of maturity is 4 mo. 3 da. from Jan. 1, or May 4. II. The time to run or term of discount is from Mar. 5 to May 4, or 26 +30 + 4 = 60 da. = yr. III. The discount is of $20 = $3.333. ($20 is the discount for 1 yr.) IV. The proceeds are $200 - $3.33 = $196.66§. NOTE. In problems where interest plays no part, there are four steps in the solution, as shown above. The steps are :— I. The Date of Maturity. II. The Time to run. III. The Discount for the given time. 2d Case Note bearing interest. PROBLEM: Find the bank discount, time to run, and proceeds of the following: A note for $300, dated June 1, 1891, bearing 6% interest, discounted Sept. 1, 1891, at 10%. The note was due 10 mo. from date. WORK: I. The date of maturity is 10 mo. 3 da. from June 1, 1891, or Apr. 4, 1892. II. The interest on $300 for 10 mo. 3 da. at 6% $15.15. = 216 = III. The face of the note = $300 + $15.15 = $315.15. IV. The time to run or term of discount is from Sept. 1, 1891, to Apr. 4, 1892, or 216 da. 18 yr. = yr. V. The discount of $31.515 $18.92. ($31.515 is the discount for 1 yr.) VI. The proceeds = = = = $315.15 $18.92 $296.23. NOTE. In problems where interest plays a part, there are six steps, instead of four, in the solution. |