View
216
Download
1
Category
Preview:
Citation preview
Chapter 5, Section 1Promissory Notes
What’s a promissory note? A written promise, or IOU, that you will
repay the money to the lender on a certain date.
You will also have to pay interest. Sometimes you will have to put up
“collateral.”
What’s included in a promissory note? Principal: Amount of money borrowed Date of note: Date the note was signed. Maturity date: Date the note is due. Interest rate: rate of interest to be paid. Maturity value: the total amount due on
the maturity date, including interest.
How do you calculate interest on a note? The same way we did before…
I = P x R x T Time is expressed in years
3 months= 3/12=1/4 So to find the total amount due on the
maturity date you just add the interest back the principal.
Example 1, p. 172 Check your understanding A
What if the time of the note is shown in days, not years? You use the “exact interest method.” Exact interest uses a 365-day year. To find exact interest, you show time as
a fraction with 365 as the denominator. For example, 79 days = 79/365 Example 2, p. 173 Check your understanding C
What other ways is interest calculated? Using the “ordinary interest” method or
bankers interest method. With this method of finding interest, a
year has only 360 days (12, 30 day months). This is known as a banker year.
It’s used because it’s easier to calculate than a 365 day year.
Example 3, p. 173. Check your understanding E
What if I need to know what interest rate I paid? Use this simple formula:
Interest paid for 1 year/principal If the time isn’t expressed as a year you
must figure out how much interest they would have paid in a year.
12 months/ # of months= time Time x amount of interest=interest paid in 1
year. Example 4, p. 174. Check your understanding G.
Let’s Practice! P. 175-176, 7-29 (omit 27)
Recommended