Lesson 6 simple discount
- 1. SIMPLE DISCOUNT ALAN S. ABERILLA
- 2. SIMPLE DISCOUNT Is also known as bank discount Bank discount that the bank deducts from a loan in advance The process of finding the present value of a given amount that is due on a future date and includes a simple interest. In other words, to discount an amount by the simple interest is to find its present value
- 3. Discount – The interest deducted from the amount of a loan Proceeds – The amount of money that we received as a loan. The value of a loan less the discount Future Value – Total amount that we repay. Also called “Face Value” D = Mdt Proceeds = M – D = M – Mdt = M(1 – dt) D – Simple discount M – amount of loan (at maturity), face value, future value d – simple discount rate per year t – discount period in years
- 4. Example 1. Ivan Lacsama borrowed P 50,000.00 from ASA Community Bank to upgrade the bathroom in his house. Find the proceeds if the loan is the simple interest rate is 10% and the discount rate is 8% for 2 years. Given: P – P 50,000.00 r – 10% = 0.1 d = 8% = 0.08 t = 2 years Solution: Is = Prt M = P + Is D = Mdt = P 50,000.00(.1)(2) = P 50,000.00 + P 10,000.00 = P 60,000.00(.08)(2) = P 10,000.00 = P 60,000.00 = P 9,600.00 Proceeds = M – D = P 60,000.00 – P 9,600.00 = P 50,400.00
- 5. Example 2 On April 1, Yolanda borrowed P2,000 from First Community Bank to upgrade the bathroom in her house. The note matured on August 1 of the same year, and the simple interest rate was 8.5%. The note was sold to Regions Bank on June 1, at a simple discount rate of 8%. How much did Regions Bank pay for the note? Solution: The term of the loan 122 days Is = PRT I = P2,000.00 x 8.5% x 122/365 = P 56.82 Maturity Value = P2,000.00 + P56.82 = $2,056.82 D = MdT = P 2,056.82 x 8% x 61/365 = P27.50 Proceeds = P 2,056.82 – P 27.50 = P 2,029.32
- 6. ACTIVITY 6 Solve the following: 1. Richard Torres borrowed P 75,000.00 from ASA Community Bank to upgrade the bathroom in his house. Find the proceeds if the loan is the simple interest rate is 8% and the discount rate is 5% for 2 years. 2. Simon loaned Julie P 500.00 for 100 days at a simple interest rate of 7%. However, 40 days later, he sold the note to Arvie using a simple discount rate of 8%. Calculate the simple interest rate that Simon actually earned. 3. Rosemary loaned Grace P 15,000.00 for 2 years at 6.5% simple interest. One year later, Rosemary sold the note to Stephen at a simple discount rate of 6.5%. How much did Stephen pay for the note? 4. Elma borrowed from ABC Finance Company which charged bank discount of 12%. If the proceeds received is P 25,000.00 for the period of 215 days, Find the value of the discount charded.
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