Formula
Formula for simple interest
I=PRT
What is banker's interest?
Bonus: 50 points if you know it's other name
calculates interest based on 360 days per year (v 365)
Ordinary Interest
A legal document in which a person promises to pay a specific amount of money either on demand or at a set future date.
Promissory Note
Formula for calculating simple interest rate
R=I/PT
Tom Swift needs to borrow $28,300 to remodel his bookstore so that he can serve coffee to customers. He borrows the funds for 10 months at an interest rate of 9.25%. Find the maturity value of the loan.
$30,481.46
Formula for maturity value of a simple interest loan
M=P+I
This is something of value that will cover debt if the borrower does not make payment
collateral
A short-term loan where the interest is calculated on the face value and deducted upfront rather than paid later.
Simple Discount Note or Bank Discount NOTE
The percentage used by the bank to find their discount on a promissory note
bank discount
Gilbert Construction Co borrows funds at 10% for 54 days to finish building a home. Find the principal that results in the interest of $1560.
$104,000
Formula to find bank discount
B=MDT
This is when another person agrees to pay the debt if the main borrower does not make payments
cosign
a 4-52 week short term investment that is sold for below face value and investors can collect face value after the stated amount of time, used to raise US government funds
US Treasury Bills/T-Bills
the best rate commercial banks can charge for the most credit-worthy customers
prime rate
12%
Formula to find proceeds of a simple discount note
P=M-B
Another name for a simple discount note
interest-in-advance note
the most common low-interest, simple discount note and student loan for full-time college students funded by the US Dept of Education
Stafford Loan - Federal Direct Loan
the interest rate based on the actual cost of borrowing money
Annual Percentage Rate (APR), effective or true rate of interest
Tina purchases a car and plans to rebuild it. She borrows $18,000 for 180 days. Find the face value of the 10% simple discount note that would result in proceeds of $18,000.
$18,947.37
Formula to find the face value of a simple discount note
M=P/1-DT
The 1968 law that required lenders to disclose all key terms and costs of a loan, including annual percentage rate
Truth in Lending Act
When a loan is not repaid and the bank takes ownership of the borrower's collateral
Foreclosure
Interest on the principal AND the interest previously accrued
compound interest
You purchase a $100,000 T-bill with a term of 26 weeks at 3.5% simple discount rate. You need cash fast and 8 weeks later sell the T-bill Ms. Fondale. The interest rate at the time of sale is 3%. What proceeds will YOU receive from the sale?
$711.54