PRESENT WORTH AND TRUE The Present Worth of any debt is a sum, which, if put at interest, will amount to that debt in the given time. The True Discount is the difference between the debt at maturity and its present worth. Remember: 1. To allow 3 days of grace, if the debt discounted is a note. 2. To add the interest due at maturity to the principal, before discounting, if the note bears interest. PROBLEMS. Case I.-Note not bearing interest. PROBLEM: What is the present worth and true discount on a note of $200, if paid 6 mo. before due, the discount being 6%. SOLUTION: Amount of $1 for 6 mo. at 6% = $1.03. If $1.03 = amount of $1, $200 is the amount of as many $194.17 is the present worth. $200 $194.17 = $5.83 true discount. The following rule can be deduced from the foregoing solution: RULE: 1. To find the present worth, divide the debt by the amount of $1 for the given time. 2. To find the true discount, subtract the present worth from the debt. Case II.-Note bearing interest. PROBLEM: What is the present worth of a note of $300, bearing 6% interest, due in 2 yr. 4 mo., if money is worth 10% ? SOLUTION: = Int. on $300 for 2 yr. 4 mo. at 6% $42. = $300 $42 $342. Amount due at maturity. Amount of $1 for 2 yr. 4 mo. at 10% = $1.23. If $1.23 = amount of $1, then $342 is the amount of $- or $277.29. 342 9 1.23/ $277.29 = present worth. EXCHANGE. TALK: A man in Chicago owes a man in New York city a He can send it to him in one of four 1. By Check 2. By Post-office Order 3. By Express Order 4. By Bill of Exchange. The pupil understands something of the first three ways, but does he know about the bill of exchange? SENDING BILLS OF EXCHANGE. If, for every little business transaction, money had to be sent from one business center to another, much needless inconvenience and expense would be incurred. Suppose Mr. Green of Chicago owes Mr. Brown of Milwaukee $200 for groceries and Mr. Allen of Mil waukee owes Mr. Robinson of Chicago $200 for rent. Wouldn't it save expense and trouble if Mr. Green should go to Mr. Robinson and Mr. Allen to Mr. Brown? Thereby two debts are cancelled by two city transactions and no money need be sent from one city to another. This is all there is to Exchange, only in business life, banks instead of individuals, take it upon themselves to transact the business. Exchange is no more than a method of making payments between distant places without transmitting the money each time. Only a small percentage of the money really passes from one city to another. Exchange in the United States is carried on mostly by banks located in the large cities which charge a small fee for transacting the business. A Bill of Exchange or Draft is a written order for the payment of a certain sum of money by one person on another. A Bank Draft is one made out by ore bank on another but may be cashed at nearly any banking house. The Drawer of the draft is the signer. The Drawee is the one to whom it is addressed. The Payee is the one to whom it is payable. The Holder is the one who has possession of the draft. If the drawee accepts the draft, he writes across the face of it "Accepted" with the date and his signature. This is called an Acceptance. Once accepted, the draft becomes a note with the same laws regulating it. If the draft is not accepted, it is not binding and we say that it has been "dishonored." A bill of exchange is entitled to days of grace, if it is payable in a state where grace is allowed, unless a particular day is named in the draft. In most states, uo grace is allowed on sight drafts. There are two kinds of bank drafts, Sight Drafts James Neal of Milwaukee owes James McCarthy of New York $1200. He goes into the First Nat'l Bank of Milwaukee and buys the above draft. On the back he writes "Pay to the order of Jas. McCarthy" and then mails it to Jas. McCarthy. Mr. McCarthy calls at his bank and receives the money. $1200.00 A TIME DRAFT. FIRST NATIONAL BANK OF MILWAUKEE Jas. Mc Carthy Milwaukee, Wis., Feb. 6, 190 2. At 15 days sight, pay to the order of Value received, and charge the same to the account of To the Merchants' Nat'l Bank EXPLANATION: NEW YORK. Geo, Greer, Cashier. Here Mr. Neal of Milwaukee sends the above to Jas. McCarthy. Mr. McCarthy indorses it and presents it at the bank. If the cashier writes on it "accepted," his bank becomes liable for its payment 15 days after presentation. Drafts of another character are used extensively in the collection of debts. Suppose Smith & Gray, retail clothiers at Oakland, Cal., owe French & Sons, wholesalers at San Francisco, six hundred dollars for clothing. If Smith & Gray fail to pay the amount when due, the following draft is a sample of those used in the collection of such debts: No. 13987 A COMMERCIAL DRAFT. SAN FRANCISCO, CAL., Feb. 23, 1903. At sight, pay to the order of.... THE FIRST NATIONAL BANK, San Francisco, $600.00 |