DISCOUNTING NOTES 113 



the face of the note. Therefore, for every $0.99 the maker of the note 

 receives from the bank, he must give his note for $1 ; then to re- 

 ceive $99 he must make his note for as many dollars as $0.99 is 

 contained times in $99, the proceeds of the note. The face of the 

 note is $100. 



EXERCISE 



1. For what sum must I give my note, payable to a bank, 

 for 6 mo. with interest at 6%, so that I may realize $291? 



2. For what sum must I give my note, payable to a bank 

 in 60 da., with interest at 6%, so that I may realize $495 ? 



3. For what sum must I give my note, discounted at a 

 bank, for 45 da. at 6%, to realize $394 ? 



DISCOUNTING NOTES 



135. Agents and business men usually take notes from 

 their customers due at a future date. If they need the 

 money before the notes become due, they sell them to a 

 bank. When a bank buys a note, it is said to discount the note. 



The bank buys the note and the interest due at maturity, 

 and discounts the amount of the note at maturity for the 

 exact number of days of the period of discount. 



EXAMPLE. $500. HAZARD, KY., May 14, 1913 



Three months after date, for value received, I promise to pay 

 James H. Tate, or order, Five Hundred Dollars, with interest at 6%. 



ROBERT C. PORTER 



On May 25, 1913, Mr. Tate sold this note to the Perry County 

 State Bank at Hazard, Ky. The time the note is to run is expressed 

 in months, so the date of maturity will be three calendar months 

 from the date on which the note was made, or August 14, 1913. 



Banks reckon the terms of discount by counting the actual number 

 of days from the date of discount to the date of maturity. There are 

 81 da. of discount from May 25 to August 14. 



SOLUTION. Interest on $500 for 3 mo. at 6% = $7.50. Value of 

 note at maturity = $500 + $7.50 = $507.50. Discount on $507.50 foi 

 81 da. at 6% = $6.85. Mr. Tate received from the sale of this note 

 $507.50 - $6.85 = $500,65. 



