The sum charged by a _bank_ for cashing a note or time draft is called
_bank discount_. This discount is the simple interest, paid in advance,
for the number of days the note has to run. Wholesale business houses
usually sell goods on _time_ and take notes from the retailers in
payment. These notes are not often for a longer period than _three
months_. Some are placed in the banks for collection, others are
_discounted_. When a note is discounted at a bank the payee _indorses_
it, making it payable to the bank. Both maker and payee are then
responsible to the bank for its payment. If the note is drawing interest
the discount is reckoned on and deducted from the amount due at
maturity. Most notes discounted at banks do not draw interest. The
_time_ in bank discount is always the number of days from the date of
discounting to the date of maturity.
EXAMPLE: A note of $250, dated July 7, payable in 60 days, is discounted
July 7 at 6%; find the proceeds.
EXPLANATION: This note is due in 63 days, or September 8. The accurate
interest of $250 for 63 days at 6% is $2.59. The proceeds, then, will be
$250-$2.59, or $247.41.
The _Present Worth_ of a note or debt is a sum, which, if put at
interest, will amount to that debt in the given time.
The _True Discount_ is the difference between the debt at maturity and
its present worth.