Promissory Note PDF

12/18/2012
Introduction
UNIVERSITI TEKNOLOGI MARA
PROMISSORY
NOTE
When someone borrows a certain amount of

money, the borrower is required to sign a note
(thus called, a promissory note) stating that the
borrower will repay a certain sum of money at
a certain particular fixed date in the future.
MARIATHY KARIM
UiTM SARAWAK (SAMARAHAN)
FSKM(MATHEMATICS)
The main features of a promissory note are as follows.
Sample of a Promissory Note

Term of the note
Bandar Jengka,
Pahang.
30 Sept. 2001
Seventy days after date I promise to pay to the order of
Maju Niaga Consulting seven thousand, and 00/100
ringgit.
Value receives with interest at 11% due.
Due 9 december 2001.
AIDa
Aida Junaidi
Maturity
date
Date of
note
Face value
Payee
Maker
FEATURES
DETAILS
MAKER
The maker (promisor or obligor) is the person that signs

the note.
PAYEE
The payee (promise or obligee) is the person to whom

payment is to be made.
DATE OF THE
NOTE
The date of the note is the date on which the note is

made.
TERM OF THE
NOTE
The term of the note is the length of time until the note is
due for payment.
FACE VALUE
The face value of the note is the amount stated on the

note.
MATURITY
VALUE
The maturity of the note is the total sum of money which

the payee will receive on the maturity date. The maturity
value of a non-interest bearing note is the face value
while the maturity value of an interest bearing note is the
face value plus any interest that is due.
The maturity date of the note is the date on which the
maturity value is due.
MATURITY
DATE
Examples
1.
In the promissory note below,

Taman Sri Gombak,
Selangor.
20 April 2007
Sixty days after date I promise to pay to the order of K.S.BUMI
Ringgit Malaysia: Two thousand and five hundred only for value
receives with interest at the rate of 11% per annum until paid.
Due 19 June 2007.
SHEILA
Sheila
a) who is the maker of the note?

b) who is the payee of the note?
Solution:
a) The maker is Sheila.
b) The payee is K.S.BUMI
Maturity Value, S = P ( 1 + rt)
= 2500 ( 1 + (0.11)*(60/360))
= RM 2545.83
Calculate the maturity value of the note.
12/18/2012
2. A promissory note dated 22 February 2005 reads

three months from date, I Promise to pay RM
1,000.00 with interest at 9% per annum. Find
a) The maturity date of the note
b) The maturity value of the note.
Solution:
3. The Maturity value of a 60-day interest bearing promissory

note is RM450. If the interest rate is 6% per annum, what
is the face value of the note?
Solution:
S =RM 450
r = 0.06
t = 60
360
S P(1 rt )
450 P(1 (0.06)*(
a) Maturity date = 22 February 2005 + 3 months

= 22 May 2005
60
))
360
450 1.01* P
P RM 445.54
b) Maturity Value, S = P ( 1 + rt)

= 1000 * ( 1 + (0.09)*(3/12))
= RM 1022.50
4.The interest on a 90-day promissory note is RM 46. If the

interest rate is 7% per annum, find the face value of the
note.
Solution:
I = RM 46
r = 0.07
t=
90
360
I Pr t
46 P *(0.07)*(
90
)
360
46
0.0175
P RM 2628.57
So, the face value is RM 445.54
Bank Discount, D
Bank Discount is such as banks and financial institutions to

deduct the interest charged IN ADVANCE for shortterm loans. This charge is also called interest in
advance.
D = Sdt
where;
D = Simple discount / bank discount
S = Maturity value
d = simple discount rate
t = time (discount period which must be stated in year)
So, the face value is RM 2628.57
Solving Mathematical Problems using Bank Discount

concept
1. Sharifah borrows an amount that the accumulated value is
RM 8000 for three months from a lender who charges a
discount rate of 5%. Find the bank discount amount.
Solution:
Bank discount is computed in much the same way as

simple interest except that it is based on the final amount
( to be paid back) or maturity value.
2. Aiman borrows an amount that the accumulated value

is RM 2000 for 40 days from a lender who charges a
discount rate of 10%. Find the bank discount amount.
Solution:
D?
S RM 8000
3
12
d 0.05
D Sdt
(8000)(0.05)(3 / 12)
RM 100
Ans: RM 22.22
12/18/2012
DISCOUNTING PROMISSORY NOTES
Promissory notes can be sold to a bank before its maturity date

if the holder is in need of cash. The processing of selling the
promissory notes is called as discounting the note.
Refer Short notes Diagram of Discounting Promissory Notes.
Proceeds ( H )
H=S-D
H = S Sdt
H = S ( 1 - dt )
where;
H =Proceeds
S = Maturity value
d = discount rate
t = discount period
Solving Mathematical Problems using

Discounting concept
1. Ah Sing, a businessman, receives a promissory note for
RM 2500 with interest at 10% per annum that is due in
80days. The note is dated 10 Mac 2012. The note is
discounted on 15 April 2012 at a bank that charges 12%
discount. Determine the
a) maturity date
b) maturity value
c) discount period
d) proceeds
e) amount discount
Solution:
Solution:
2. Ah Wong, a businessman, receives a promissory note
for RM 2000 with interest at 8% per annum that is due
in 60days. The note is dated 10 April 2012. The note is
discounted on 5 Mei 2012 at a bank that charges 12%
discount. Determine the
a) maturity date
b) maturity value
c) discount period
d) proceeds
e) amount discount
12/18/2012
SIMPLE INTEREST RATE EQUIVALENT TO

BANK DISCOUNT RATE
The interest rate and the discount rate are said to be equivalent if
the two rates give the same present value for an amount due in
future.
Find discount rate that is equivalent to the given interest

rate.
Formula:
d = __r___
1 + rt
where;
d = discount rate
r = interest rate
t = the whole period
Example:
Find Interest rate that is equivalent to the given

Discount rate.
What discount rate should a lender charge to earn an

interest rate of 12% on half years loan.
Solution:
Formula:
d = __r___
1 + rt
r = __d___
1 - dt
where;
d = discount rate
r = interest rate
t = the whole period
=
= 0.1132 100
= 11.32%
Example:
Find the equivalent interest rate for 10% discount rate
charged on 45days of discount period.
Solution:
The End of Promissory Notes
r = __d___
1 - dt
=
= 0.1013 100
= 10.13%
Please Submit Tutorial 3 (Promissory

Notes) on next class

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12/18/2012

When someone borrows a certain amount of

The main features of a promissory note are as follows.

Sample of a Promissory Note

The maker (promisor or obligor) is the person that signs

The payee (promise or obligee) is the person to whom

The date of the note is the date on which the note is

The face value of the note is the amount stated on the

The maturity of the note is the total sum of money which

In the promissory note below,

a) who is the maker of the note?

Calculate the maturity value of the note.

2. A promissory note dated 22 February 2005 reads

3. The Maturity value of a 60-day interest bearing promissory

450 P(1 (0.06)*(

a) Maturity date = 22 February 2005 + 3 months

b) Maturity Value, S = P ( 1 + rt)

4.The interest on a 90-day promissory note is RM 46. If the

So, the face value is RM 445.54

Bank Discount is such as banks and financial institutions to

So, the face value is RM 2628.57

Solving Mathematical Problems using Bank Discount

Bank discount is computed in much the same way as

2. Aiman borrows an amount that the accumulated value

DISCOUNTING PROMISSORY NOTES

Promissory notes can be sold to a bank before its maturity date

Solving Mathematical Problems using

SIMPLE INTEREST RATE EQUIVALENT TO

Find discount rate that is equivalent to the given interest

Find Interest rate that is equivalent to the given

What discount rate should a lender charge to earn an

The End of Promissory Notes

Please Submit Tutorial 3 (Promissory

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