Simple Interest
Simple Discount Notes
Promissory Notes
The Two Borrowers
Simple Interest
Principal: Php 100,000.00
Loan Duration: 6 months
Loan Start Date: June 3
Interest Rate: 10% per year
Maturity Date: December 3
Simple Discount Notes
Principal: Php 100,000.00
COO P Loan Duration: 6 months
Loan Start Date: June 3
Interest Rate: 10% per year
Maturity Date: December 3
Simple Discount Notes
Principal: Php 100,000.00
Loan Duration: 6 months
Loan Start Date: June 3
Maturity Value Php 100,000.00
Interest Rate: 10% per year
Maturity Date: December 3
Interest Amount Days in a year
Proceeds = Principal - Interest x
Proceeds Days outstanding
180 days 5,000 360 days
= 100,000 - - ( 100,000 x 10% x
360 days
) =
95,000
x
180 days
= 100,000 - 5% (100,000) = 100,000 - 5,000 = 0.052631579 x 2
Proceeds Php 95,000.00 Effective Rate 10.52%
Principal: Php 100,000.00
Loan Duration: 6 months
Loan Start Date: June 3
Interest Rate: 10% per year
Maturity Date: December 3
Proceeds Php 100,000.00 Proceeds Php 95,000.00
Effective Rate 10% Effective Rate 10.52%
Interest Value Php 5,000.00 Interest Value Php 5,000.00
Maturity Value Php 105,000.00 Maturity Value Php 100,000.00
Proceeds of Php 100,000
Extra Php 5,000 vs COOP offer for
additional investment
Partial Note Payments before Due Date
Principal: Php 100,000.00 Partial Payments:
Loan Duration: 6 months End of month 2: 10,000
Loan Start Date: June 3, 2017 End of month 4: 25,000
Interest Rate: 10% per year
End of Month 2: End of Month 4:
Paid 10,000 Paid 25,000
60 days INTEREST = Balance Principal X R X Tdays between last partial
INTEREST = (100,000 x 10% x 360 days
) = 1,666.67 payment and current partial payment
60 days
BALANCE PRINCIPAL = Principal – Interestpaid(month2) = ( 90,000 x 10% x 360 days
)
– (Partial Payment – Interestpaid(month2))
= 1,500
= 100,000 – 1,666.67 – (10,000 – 1,666.67) BALANCE PRINCIPAL = 90,000 – 1,500 – (25,000 – 1,500)
= 90,000
= 65,500
Total Interest Php 4,258 Interest w/o Partial Payment Maturity Value Php 65,500 + Interest
Paid = 1,667 + 1,500 + 1092 = 5,000 (end of month 6)
Simple Interest Interest = P X R X T
Principal: Php 100,000.00
6 months
Loan Duration: 6 months =- ( 100,000 x 10% x
12 months
)
Loan Start Date: June 3
Interest Rate: 10% per year
Maturity Date: December 3 Interest Php 5,000.00
Interest Maturity Value = P + Interest
= 100,000 + 5,000
Principal Rate Time
PX R X T Maturity Value Php 105,000.00
Simple Discount Notes
Principal: Php 100,000.00
Loan Duration: 6 months
Loan Start Date: June 3
Maturity Value Php 100,000.00
Interest Rate: 10% per year
Maturity Date: December 3
Interest Amount Days in a year
Proceeds = Principal - Interest x
Proceeds Days outstanding
180 days 5,000 360 days
= 100,000 - - ( 100,000 x 10% x
360 days
) =
95,000
x
180 days
= 100,000 - 5% (100,000) = 100,000 - 5,000 = 0.052631579 x 2
Proceeds Php 95,000.00 Effective Rate 10.52%
Principal: Php 100,000.00
Loan Duration: 6 months
Loan Start Date: June 3
Interest Rate: 10% per year
Maturity Date: December 3
Proceeds Php 100,000.00 Proceeds Php 95,000.00
Effective Rate 10% Effective Rate 10.52%
Interest Value Php 5,000.00 Interest Value Php 5,000.00
Maturity Value Php 105,000.00 Maturity Value Php 100,000.00
Proceeds of Php 95,000
Immediate release
Promissory Notes
1. Face Value 5. Rate
2. Term 6. Maker
3. Date 7. Maturity Date
4. Payee
1
2
7
5
121 days
6
Discounting Promissory Notes Before Maturity
Date of Face Value of Term of Interest Rate Bank Discount Date of
Note Note Note of Note Rate Discount
August 1 25,000 121 days 12% 5% October 1
Holds
Needs Cash
Promissory Note
Makes Promissory Note B sells A’s Promissory
A on August 1 B Note to C on October 1 C
Receives Proceeds
from Loan
Pays Maturity Value of Note on Maturity Date of Note
Discounting Promissory Notes Before Maturity
Date of Face Value of Term of Interest Rate Bank Discount Date of
Note Note Note of Note Rate Discount
August 1 25,000 121 days 12% 5% October 1
Step 1: Details of Note Step 2: Details of Bank
(Simple Interest) Loan (Simple Discount)
PRINCIPAL = FVNote = 25,000 PRINCIPAL = MVNote = 26,008
INTEREST RATE = 12% INTEREST RATE = 5%
DISCOUNT PERIOD = Maturity DateNote – Note Date DISCOUNT PERIOD = Maturity DateNote – Discount Date
= 121 days = 60 days
60 days
INTEREST = 25,000 x 12% x
121 days
( 360 days ) = 1,008 BANK DISCOUNT = 26,008 x 5% x ( 360 days ) = 217
Maturity Value Php 26,008 Proceeds Php 25,792 Maturity Value Php 26,008
(Principal + Interest) (Principal - Interest) (Principal)
Discounting Promissory Notes Before Maturity
Date of Face Value of Term of Interest Rate Bank Discount Date of
Note Note Note of Note Rate Discount
August 1 25,000 121 days 12% 5% October 1
Holds
Needs Cash
Promissory Note
Makes Promissory Note B sells A’s Promissory
A on August 1 B Note to C on October 1 C
Receives Proceeds
from Loan
Pays Maturity Value of Note on Maturity Date of Note
Simple Interest
PROS CONS
Receive entire principal amount Stringent requirements
Maximize the Value of Money
Less Effective Interest
Why is a simple interest loan from a bank perfect for the entrepreneur?
• The entrepreneur can maximize the value of money, while minimizing the effective interest.
• The value of P 5,000 now is always better than the value of P 5,000 later, due to inflation.
Simple Discount Note
PROS CONS
Faster release of proceeds Interest paid upfront
Less Demanding requirements Higher effective interest rate
Why is a simple discount note from the cooperative perfect for the first jobber?
• The first jobber will be able to use the loan proceeds to immediately pay outstanding medical expenses.
• Simple Discount Note scheme yields a lower maturity value amount payable.
Promissory Notes
Promissory Notes are documents of commitment to pay stating:
Maker, Payee, Amount of Loan, Date of Loan & Maturity Date (Term), Interest Rate
Thank you!