PROMISSORY NOTES

y A promissory note is a written document made by one person or party to pay a

stated sum of money on a specified future date to another person or party.
y Promissory notes are negotiable documents and can be of two types :
i) interest bearing note
ii) non-interest bearing note.

y The main features of a promissory note are as follows :
i) Maker - the person that signs the note
ii) Payee - the person to whom the payment is to be made
iii) Date of the note - the date on which the note is made
iv) Term of the note - the length of time from the date of the note until the
date the note is due for payment
v) Face value - the amount stated on the note
vi) Maturity value - the total amount which the payee will receive on the
maturity date.
vii) Maturity date - the date on which maturity value dues.
e.g.
Example 1: A promissory note dated 15 July 2009 with a maturity value of
RM2583.33 will due in 150 days. If the interest rate is 8% per annum find
a) the maturity date of the note. (12 December 2009)
b) the face value of the note. (RM2500)






Example 2: A promissory note for RM1400 is dated 15 July 2002. The payment of
RM1428.62 is made on15 October 2002. Find
a) the term of the note. (92 days)
b) the interest rate charged. (8%)

BANK DISCOUNT
It is common for lenders, such as banks and financial institution to deduct the interest in advance
for short term loans. This charge is called Bank Discount or interest in advance. The nett
amount received by the borrower is called the proceeds.

Example 3: Ali wants to borrow RM1000 for a year at a discount rate of 12%.
Simple Interest Bank Discount
Face Value RM1000 Face Value RM1000
Interest RM120 Bank Discount RM120
Receive by maker RM1000 Proceeds RM880
Maturity Value RM1120 Maturity Value RM1000

Example 3: If Ali needs RM1500 now, how much
should he borrow for 200 days from a bank that charges
a discount rate of 12%?




Example 4: Farina borrows RM5000 for 9 months from a lender who charges a discount rate of
12 %. Find
a) the discount (RM450)
b) the proceeds. (RM4,550)
matuiity value
bank uiscount iate
time in YEARS
y Bank Discount
y ioceeus




14/02/09
Date of the note
14/06/09
Discount date
13/08/09
Maturity date
Term of the note
Discount period
Johnny makes a loan from
Rizal with a FACE VALUE
of RM10000 Hence, he
writes a promissory note to
Rizal. Rizal charges a
SIMPLE INTEREST RATE
of 9%.
Rizal needs money so much
for his wedding. Hence, he
sells the promissory note to
Bank. Bank charge a BANK
DISCOUNT RATE of 6.5%.
Rizal received an amount of
PROCEED.
Last date for Johnny to
paid the amount of the
MATURITY VALUE
of the promissory note.
DISCOUNTING PROMISSORY NOTE





Example 5: Based on the diagram above, calculate the term of the note, discount
period, maturity value, bank discount and the proceeds.

1. A 4-month promissory note dated 16
th
June 2008 with a simple interest rate of 9% was
discounted on 26
th
August 2008. The discount obtained at a discount rate of 6% was
RM70.04 Find
a. The maturity date of the note
b. The discount period
c. The maturity value of the note
d. The face value of the note
e. The simple interest rate that is equivalent to the discount rate

2. Aminuddin had a note with a face value of RM7500 dated 4
th
July 2008. The term of the
note and the simple interest ate was 200 days and 5.5% per annum respectively. If he
discounted the note at a bank after holding it for 120 days at a bank discount rate of 4%, find
a. The maturity date of the note
b. The maturity value of the note
c. The proceeds received
d. The simple interest rate that is equivalent to discount rate

3. Amin received a 150-day promissory note with a face value was RM12,000 dated 23
January 2009. The maturity value was RM12,425. He later discounted the note on 28 April
2009 at a discount rate of 10%. Find
a. The maturity date of the note
b. The interest rate of the note
c. The proceeds received

4. On 12
th
November 2007, Suzana received a 200-day promissory note with a face value of
RM9000 and a simple interst rate of 7.5%. forty days before maturity date, Suzana
discounted the note at bank and received RM9312.50. Find
a. The maturity date of the note
b. The maturity value of the note
c. The discount rate charged