In calculating the bank discount when discounting an interest-bearing note, which one of the following is not used in the calculation?
The principle proceeds are not used. The principle proceeds + bank discount = maturity value
2. The rate used in computing interest on a discounted note in determining the proceeds is called the discount
False - this rate is called the note rate, or contract rate, or coupon rate.
Accounting: Determine the rate used to discount the noninterest-bearing note?
Can anyone help me please. I just cant get the right answer. Thanks! Cypress Oil Company's December 31, 2011, balance sheet listed $645,000 of notes receivable and $16,000 of interest receivable included in current assets. The following notes make up the notes receivable balance: Note 1 Dated 8/31/11, principal of $300,000 and interest at 10% due on 2/28/12. Note 2 Dated 6/30/11, principal of $150,000 and interest due 3/31/12. Note 3 $200,000 face value noninterest-bearing note dated 9/30/11, due 3/31/12. Note was issued in exchange for merchandise The company records adjusting entries only at year-end. There were no other notes receivable outstanding during 2011. 1)Determine the rate used to discount the noninterest-bearing note 2)Determine the explicit interest rate on Note 2 3)What is the amount of interest revenue that appears in the company’s 2011 income statement related to these notes?
Help !! About computing discounting notes!?
These notes receivable appear to be non-interest bearing notes, since no interest rate is given. Henry receives a 60-day, $35,000 bank discount note on November 18, 2007. How much will be received if it is discounted at 9.5% 35 days later? Maturity value = $35,000 less discount [$35,000 x 0.095 x 25/360] $230.90 Proceeds = $34,769.10 Find the proceeds of a note for $28,000 payable 5 months after September 20, 2007, and discounted at a bank on Nov. 5, 2007 at 12.6%. Maturity value = $28,000 less discount [$28,000 x 0.126 x 106/360] $1,038.80 Proceeds = $26,961.20 Answers will be slightly different if you use a 365-day year.
What is the difference between true discount and simple interest?
True Discount is the method of calculation and collection of Interest upfront from the borrower while disbursing the loan at a specific rate of Interest at the same time same rate of interest is considered for calculating interest on interest and transfer the same to customerEx: if the loan amount is 10,000 and Interest amount is 1000 and interest on calculated interest amount is 100 During Disbursement of loan ( 10000-1000+100 = 9100) will be given to the borrower.In Case of simple Interest Method Interest Amount will be calculated and collected on principal expected/outstanding on schedule due dates.Difference in case of SI method is Interest is collected on Scheduled dates with principal amount and in case of TD Interest amount is collected upfront and Int on Int is provided to customer.
What is the difference between interest rate and discount rate in banking?
Interest Rate...Interest is the cost a borrower pays to use someone else's money. Say you take out a $100,000 mortgage at a 8 percent annual interest rate. The bank didn't really "give" you $100,000. It's just letting you use its money for a while. You'll pay the money back, of course, but each year, you'll also pay the bank 8 percent of your outstanding mortgage balance for the privilege of using its money. Car loans, credit cards, student loans, housing loan..they all work on the same principle. Buy a bond or put money in a savings account, and you'll be the one earning interest: Someone will pay you for the privilege of using your money.This interest rate reflacts risk i.e. the chances that the loan amount won't be repaid. This is the reason all lousy credits are having higher borrowing cost.Discount rate....This is of more interest to investors. It's the rate you use when adjusting for the "time value of money." The time value of money is a basic principle of finance. It means that a certain amount of money has different values at different points in time. Given a choice between receiving $1000 today and getting $1000 in a year, you should take the money now. You could invest it, and if you earned any return at all (even a risk-free rate), you'd end up with more than $1000 a year from now.Basically discounting rate is used to find out present and future value of money...
How much monthly interest would I earn if I deposit 10 Lakh in an account with SBI Bank?
Please refer to the SBI webpage on this topic:Domestic Term Deposits Below One CrorePlease note that the interest rate is highest if deposited for a term of 211 days to less than 1 year (364 days);Payment of interest at Monthly/Quarterly/Calendar quarter basis as per your requirement.Payment of Monthly interest will be at discounted rate. Interest will be paid at the contracted rate irrespective of change in the rates thereafter.Senior Citizens get 0.25% extra interest rate for amount above Rs 10,000/-For Savings Bank you are entitled to 4% p,a on daily balance method’To know the exact amounts you would be getting pl refer to the webpage for computing the interest earned using different methods of calculations; this would help you to optimize the returns on your investments;How Bank Calculate Interest?
What discount rate do you use in your DCF valuation?
The WACC is a required component of a DCF valuation. Simplistically, a company has two primary sources of capital: (1) debt and (2) equity. The WACC is the weighted average of the expected returns required by the providers of these two capital sources. Note that the discount rate must match the intended recipients of the projected cash flows in the DCF. That is, if the cash flows are intended for all capital holders, the WACC is the appropriate discount rate. However, the cost of equity is the appropriate discount rate if cash flows to equity holders are projected.In addition to being a critical input for a business valuation, the WACC serves as a basis of comparison to the return on invested capital (ROIC) of the business. A company generates value through growth if the ROIC exceeds the WACC, but destroys value if ROIC is below the WACC. This analysis can be used by management to focus its attention on profitability or growth to increase enterprise value.Mathematically, the required return of each source of funding is multiplied by its respective weight in the company’s capital structure. The sum of the weighted components equals the WACC. The formula for WACC is as follows:To learn more about how to calculate discount rates for privately-held companies, read more at the Toptal Finance Blog here.