This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 556.— The current rate for demand sterling bills is 9 7-8 and for 60 days 9 1-8. What should a 90-day bill and 30-day bill be worth at the same time, and how would you make it out?
Answer.—The difference between a demand and a 60-day bill represents the interest on the money and the stamp; the latter on any bill payable on demand is 1d., while for 60-day or other term bills it is 1s. per £100, say 1-20 of 1 per cent.
The interest rate that governs is, speaking loosely, the current market rate for banker's bills in London. This might be higher for 90-day than for 60 or 30-day bills, so that no arbitrary rule can be named, but assuming that interest rates are alike for the different terms, the rate should work out about as follows:
Demand rate (on your hypothesis) 9 7-8 per cent.
60-day rate (on your hypothesis) 9 1-8 per cent.
The difference of ¾ per cent. represents 1-20 stamp and 63 days' interest at about 4 per cent. per annum.
On this basis a 30 or 90-day bill would be worth as much less than demand as 33 or 90-days' interest at the above rate would amount to.