Simple Discount Note Formula

MJC Revised 1/2012 Page 1

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.

Morrison Pet Supply Company Simple Discount Note December 31, 20XX