Professional Documents
Culture Documents
Discount
Presented by:
Ms. Mikee Sim
Outline
Simple Interest
Exact and Ordinary Interest
Actual and Approximate Time
Simple Discount
Promissory Notes
Discounting Promissory Notes
Definition of Terms
Lender / Creditor the person or institution that
makes the funds available to those who need it.
Borrower the person or institution that avails of
the funds from the lender.
Interest a certain sum of money that the lender
charges the borrower for the use of the funds.
TYPES OF INTEREST:
Simple Interest
Compound Interest
Simple
Interest
Three Factors:
Principal
Interest Rate
Time or Term of the
loan / investment
Formula:
I=Prt
I = Interest
P = Principal
r = rate
t = term of the loan in
years
Simple
Interest
Three Factors:
Principal
Interest Rate
Time or Term of the
loan / investment
Formula:
I=Prt
I = Interest
P = Principal
r = rate
t = term of the loan in
years
Maturity
Value or
Future
- The sum of the
principal and the
Amount
interest
Formula:
F=P+I
F=P+Prt
F=P(1+
rt)
P = P40,000
r = 0.06
F=?
t=5
Solution:
F = 40,000 [ 1 + (0.06)(5) ]
F = 40,000 (1.3)
F = P52,000
Answer:
Lucy will have to pay P52,000 after
5 years.
Simple
Interest
Two categories:
Exact Interest
Ordinary Interest
number of days
te =
365
number of days
to =
360
P = P3,500
r = 0.15
I=?
t = 245
Solution (a):
Ie = P r t e
Ie = 3,500 (0.15) 245
Ie = P352.40
365
Answer:
The simple interest earned
P352.40 using exact interest.
is
Simple
Interest
Two categories:
Exact Interest
Ordinary Interest
number of days
te =
365
number of days
to =
360
P = P3,500
r = 0.15
I=?
t = 245
Solution (b):
Io = P r t 0
Io = 3,500 (0.15) 245
Io = P357.29
360
Answer:
The simple interest earned
P357.29 using ordinary interest.
is
Maturity
Value or
Future
Two categories:
Exact Interest
Amount
Ordinary Interest
number of days
te =
365
number of days
to =
360
F = 5,000
48
1 (0.2) 365
F = P5,131.51
Answer:
P5,000 will accumulate to P5,131.51
using exact interest.
Maturity
Value or
Future
Two categories:
Exact Interest
Amount
Ordinary Interest
number of days
te =
365
number of days
to =
360
48
1 (0.2) 360
F = P5,133.33
Answer:
P5,000 will accumulate to P5,133.33
using ordinary interest.
Actual Time
and
Origin date
Approximate
Maturity date
Time
Actual time is obtained
by counting the actual
number of days between
the two given dates.
Approximate time is
obtained by counting
the actual number of
days between the two
given dates but on the
assumption that each
month has 30 days.
Find
the
actual
time
and
approximate time between April
15, 2008 and December 21 of the
same year.
Given: Origin date: April 15, 2008
Maturity date: Dec. 21, 2008
Actual time = ?
Solution (a):
Mont
h
Apr
May
Jun
Jul
Aug
No.
of
days
30
15 =
15
31
30
31
31
Mont
h
Sep
Oct
Nov
Dec
Total
Answer:
No.
30
31
30
21
250
of are 250 actual days from
There
days15, 2008 to December 21,
April
2008.
Actual Time
and
Origin date
Approximate
Maturity date
Time
Actual time is obtained
by counting the actual
number of days between
the two given dates.
Approximate time is
obtained by counting
the actual number of
days between the two
given dates but on the
assumption that each
month has 30 days.
Find
the
actual
time
and
approximate time between April
15, 2008 and December 21 of the
same year.
Given: Origin date: April 15, 2008
Maturity date: Dec. 21, 2008
Approximate time = ?
Solution (b):
Mont
h
Apr
May
Jun
Jul
Aug
No.
of
days
30
15 =
15
30
30
30
30
Mont
h
Sep
Oct
Nov
Dec
Total
Answer:
No.
30
30
30
21
246
of are 246 approximate days
There
days
from
April 15, 2008 to December
21, 2008.
Actual Time
and
Origin date
Approximate
Maturity date
Time
Actual time is obtained
by counting the actual
number of days between
the two given dates.
Approximate time is
obtained by counting
the actual number of
days between the two
given dates but on the
assumption that each
month has 30 days.
How
much
should
Mr.
Buenaobra pay if he borrowed
P10,000 on June 25, 2008 and if
the principal plus interest are to
be paid on November 18, 2008
at 15% interest, using
a.Exact
interest
for
the
approximate time;
b.Ordinary interest for the
approximate time;
c.Exact interest for the actual
time;
d.Ordinary interest for the
F=P(1+rt)
actual time?
Actual Time
and
Origin date
Approximate
Maturity date
Time
Actual time is obtained
by counting the actual
number of days between
the two given dates.
Approximate time is
obtained by counting
the actual number of
days between the two
given dates but on the
assumption that each
month has 30 days.
How
much
should
Mr.
Buenaobra pay if he borrowed
P10,000 on June 25, 2008 and if
the principal plus interest are to
be paid on November 18, 2008
at 15% interest?
Given: Origin date: June 25, 2008
Maturity date: Nov. 18,
2008
P = P10,000
F =No
? Tota
Mont
Jun rJu= 0.15
Au Se Oc
h
l
g
p
t
v
l
Actual
time
No.
of
days
30
25 =
5
3
1
31
Mont
Jun
Ju Au
h
l
g
Approximate
time
No.
of
30
25 =
3
0
30
30
31
18
146
Se Oc
p
t
No
v
Tota
l
30
18
143
30
Actual Time
and
Approximate
Origin date
Maturity date
Time
Actual time :146 days
Approx. time: 143
days
F=P(1+rt)
143
1
(
0
.
15
)
365
Actual Time
and
Approximate
Origin date
Maturity date
Time
Actual time :146 days
Approx. time: 143
days
F=P(1+rt)
143
1
(
0
.
15
)
360
Actual Time
and
Approximate
Origin date
Maturity date
Time
Actual time :146 days
Approx. time: 143
days
F=P(1+rt)
146
1
(
0
.
15
)
365
F = 10,000
F = P10,600
Actual Time
and
Approximate
Origin date
Maturity date
Time
Actual time :146 days
Approx. time: 143
days
F=P(1+rt)
146
1
(
0
.
15
)
360
Simple
Discount
Formula:
Id = F d t
Pr
Formula:
Pr = F - I d
Pr = F F d t
Pr = F ( 1 - d t )
Simple
Discount
Id = F d t
Pr = F - Id
Pr = F ( 1 dt)
Pr = F I d
Id = 20,000 (0.06)(3)
Pr = 20,000
3,600
Id = P3,600 Pr = P16,400
Answer:
The interest that will be deducted in
advance is P3,600 and the borrower
will receive P16,400 on the origin
date.
Simple
Discount
Id = F d t
Pr = F - Id
Pr = F ( 1 dt)
Pr = P9,120
Answer:
Samson will get P9,120 out of the
P12,000 that he loaned. He will,
however pay P12,000 on the maturity
date since the interest was already
deducted.
Promissory
Notes
Is a written promise
May 8, 2008
term
drawn by a person or
an institution (drawer)
30 days after date, I promise to pay
to another person or
ABC Lending Corporation the sum of four
institution (drawee) to
thousand three hundred pesos (P4,300) plus a
pay a certain amount
12% interest per annum.
face value
of
money
at
a
drawee
Mary-Anne Raymundo
specified time and interest rate
interest rate.
maturity date
Two
types
of
promissory notes:
Simple Interest Note
Bank Discount Note
June 7,
2008
drawer
Promissory
Notes
Is a written promise
drawn by a person or
an institution (drawer)
to another person or
institution (drawee) to
pay a certain amount
of
money
at
a
specified time
and
face value
interest rate.
Two
types
of
promissory notes:
Simple Interest Note
Bank Discount Note
December 30,
2008
Discounting
Notes
the procedure of selling
the notes to individuals
or other institutions
before its maturity date.
STEPS IN DISCOUNTING A
SIMPLE INTEREST NOTE:
1. Find the maturity value
of the simple interest
note.
2. Determine the
discount period or
discount term. This is the
time from the date the
note is discounted to the
maturity date.
3. Find the proceeds
using the discount rate
and the discount period.
Johnson
issued
a
simple
interest note worth P15,000 to
William on October 12, 2008
which matures after 2 months
with an interest rate of 15%. If
William decides to sell it to Gina
on November 15, 2008, what
will be the proceeds of the note
if Gina charges 16% interest?
Given: P = P15,000
months
r = 0.15
0.16
Pr = ?
t = 2
d=
Discounting
Notes
the procedure of selling
the notes to individuals
or other institutions
before its maturity date.
STEPS IN DISCOUNTING A
SIMPLE INTEREST NOTE:
1. Find the maturity value
of the simple interest
note.
2. Determine the
discount period or
discount term. This is the
time from the date the
note is discounted to the
maturity date.
3. Find the proceeds
using the discount rate
and the discount period.
Given: P = P15,000
months
r = 0.15
0.16
Pr = ?
Solution:
Step 1
t = 2
d=
2
F = P ( 1 +
r
t
)
1 (0.15) 12
F = 15,000
F = P15,375
Discounting
Notes
the procedure of selling
the notes to individuals
or other institutions
before its maturity date.
STEPS IN DISCOUNTING A
SIMPLE INTEREST NOTE:
1. Find the maturity value
of the simple interest
note.
2. Determine the
discount period or
discount term. This is the
time from the date the
note is discounted to the
maturity date.
3. Find the proceeds
using the discount rate
and the discount period.
Given: P = P15,000
months
r = 0.15
0.16
Pr = ?
t = 2
d=
Solution:
Step 2
Discount Date: November 15
Maturity Date: December 12
November (30-15)
15
December
12
27 days
Discounting
Notes
the procedure of selling
the notes to individuals
or other institutions
before its maturity date.
STEPS IN DISCOUNTING A
SIMPLE INTEREST NOTE:
1. Find the maturity value
of the simple interest
note.
2. Determine the
discount period or
discount term. This is the
time from the date the
note is discounted to the
maturity date.
3. Find the proceeds
using the discount rate
and the discount period.
Given: P = P15,000
t
months
r = 0.15
d = 0.16
Pr = ?
Solution:
Step 3
Id = F d t
Id = 15,375
0.16
27
360
Id = P184.50
Pr = F Id
Pr = 15,375 184.50
Pr = P15,190.50
Answer: William will receive
P15,190.50 for selling the simple
interest note issued to Gina.
Discounting
Notes
the procedure of
selling the notes to
individuals or other
institutions before its
maturity date.
STEPS IN
DISCOUNTING A
BANK NOTE:
1. Determine the
discount period. This
is the time from the
date the note is
discounted to the
maturity date.
2. Find the proceeds
using the discount
rate and the discount
Pr = F I d
Pr = 150,000 2,500
Answer:
Trake Inc. will receive P147,500 from the
sale of the bank discount note.