Chapter 11 Key Terms

Description

Chapter 11 discusses promissory notes, discount notes, discount process, and maturity value.
Theresa Horstmann
Flashcards by Theresa Horstmann, updated more than 1 year ago
Theresa Horstmann
Created by Theresa Horstmann over 2 years ago
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Question Answer
Bank Discount The amount of interest charges by a bank on a note. (Maturity Value x Bank Discount Rate x Number of days bank holds note/360)
Bank Discount Rate Percent of interest.
Contingent Liability Potential liability that may or may not result from discounting a note.
Discount Period Amount of time to take advantage of a cash discount.
Discounting a Note Receiving cash from selling a note to a bank before the due date of a note. Steps include; 1. calculate maturity value 2. calculate number of days bank waits for money 3. calculate bank discount 4. calculate proceeds
Effective Rate True rate of interest. The more frequent the compounding, the higher the effective rate.
Face Value Amount of insurance that is stated on the policy. it is usually the maximum amount for which the insurance company is liable.
Interest-Bearing Note Maturity value of note is greater than amount borrowed since interest is added on.
Maker One who writes the note.
Maturity Date Date the principal and interest are due.
Maturity Value (MV) Principal plus interest (if interest is charged). Represents amount due on the due date.
Non-interest Bearing Note Note where the maturity value will be equal to the amount of money borrowed since no additional interest is charged.
Payee One who is named to receive the amount of the check.
Proceeds Maturity value less the bank charge.
Promissory Note Written unconditional promise to pay a certain sum (with or without interest) at a fixed time in the future.
Simple Discount Note A note in which bank deducts interest in advance.
Treasury Bill Loan to the federal government for 91 days (13 weeks), 182 days (26 weeks), or 1 year.
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