Module 3 – DISCOUNT

Most Essential Learning Outcomes

At the end of this chapter, you must have:

1. described the nature of discount, bank discount
2. discussed the phrase “to discount” and the concept of present value;
3. computed the amount or size of loan to be discounted;
4. identified the types and parts of promissory notes;
5. determined proceeds of discounted interest-bearing and non-interest-bearing notes;
6. discussed the relation between interest rate and discount rate;
7. determined effective interest rate; and
8. identified the amount due on notes with a series of partial payments
9. solved problems on discounts

Contents
 The Nature of Discount
 Simple Discount
 The term ”To Discount” and the Present Value
 Bank Discount
 Determining the Amount of Loan to be Discounted
 Promissory Notes
 Discounting of an Interest-Bearing Promissory Note
 Discounting of a non-Interest-Bearing Promissory Note
 Relationships between Interest Rate and Discount Rate
 Effective Rate of Interest
 Partial Payment of Notes

Nature of Discount
The term "discount," as a noun, can mean any the following:
1. Reduction from the full amount of a price or debt
2. The interest deducted in advance in lending commercial paper
3. The rate of interest deducted in a lending transaction

As a verb, discount may connote the following:

1. To deduct from a price
2. To advance money after deducting interest
3. To reduce the value
Based on the different connotations given above, discount has no precise and
definite meaning. Basically, the meaning depends on how it is used on a given context.
By the process of deduction, discount, therefore, refers to the difference between
two values and the present value of an amount. We will use these two concepts of
discount in the succeeding discussions.

Simple Discount
 Simple discount refers to the difference between the future value or amount due and
its present value.
Simple discount is also equivalent to the simple interest. It is called simple discount
because the discount is computed only once during the entire period of borrowing.
To facilitate easy discussion of simple discount, the terms in simple interest are placed
beside its equivalent terms in simple discount.
Under Simple Interest Under Simple Discount

Principal Present value

Maturity value or amount Future value or amount due

Interest Discount

Interest rate
Discount rate
Query: What is the salient difference between simple interest and simple discount?
Answer: Under the concept of simple interest, the interest is payable on the due date of the
loan. In other words, the borrower pays the creditor or the bank the principal amount plus
interest on the maturity date. Hence, the borrower receives the full amount on that date.
In simple discount, the interest on the amount borrowed is deducted in advance, In
other words, the borrower receives only the net amount (amount borrowed minus interest); and
on the due date, he/she will pay the principal in full.

ILLUSTRATIVE PROBLEM 2.1☼

Sol borrowed P 15,000 at 12% for a term of 2 years.

Required: Determine the following under simple interest and simple discount:

1. Interest deducted in advance

2. Amount received on the loan date

3. Amount payable on the due date

Answer and analysis I: The interest or discount on P 15,000 at 12% for 2 years is computed
as follows:

Interest/Discount =15,000 x 12% x 2

= 36,000

In simple interest, the P 3,600 is payable on the due date, while in simple discount, the
€3,600 is deducted during the loan date. Hence, interest amounts deducted in advance appear
as follows:

Simple interest = 0 (not applicable)

Simple discount = P3,600
 This means that if the borrowing is computed using the concept of simple interest, no
interest will be deducted in advance. However, if the loan is made as a discount, the P 3,600
interest will be deducted in advance during the date of the borrowing.

Answer and analysis 2: The amount received on loan date under the two concepts is
computed as follows:

Simple interest= P15, 000

Simple discount= P11,400 (P15,000 - P3,600)

This means that on the loan date, the borrower will receive P 15,000 if the interest is
computed based on the concept of simple interest. On the other hand, if the loan is treated as a
discount, the borrower will receive PI 1,400 on the loan date.

Answer and analysis 3: The amounts payable on the due date are as follows:

Simple interest PI 8,600 (P15,000 + 36,000)

Simple discount P15,000

This means that if the interest is computed and treated under the concept of simple
interest, the borrower will pay P18,600 on the due date. However, if the borrowing is
considered as a discount, the borrower will pay 15,00 upon the maturity period.

In a tabular presentation, the above data appear as follows:

Simple Interest Simple

Discount

Interest deducted in advance P0 P 3,600

Amount received on the loan date 15,000 1 1,400

Amount payable on the due date 1 8,600 15,000

When the interest is deducted in advance, borrowing is considered to be discounted.
 Illustrative Example 2.2 ☼

Geraldine borrowed P20,000 at 12% discount rate, payable after 2 years and 6 months.
Required: Determine the discount.
Answer and analysis: The discount is computed as follows:
Discount (D)= 20,000 x 12% x 2.5
P 6,000
On the loan date, Geraldine will receive P 14,000 (P 20,000 — P 6000), and will pay P
20,000 on the due date. The P 14,000 is the present value, while the P 20,000 is the maturity or
future value.
Simple Discount Formulas
To compute for the discount, use:
D = Mrt
where:
D= Discount
Maturity value
r Discount rate
t Discount time
To compute for the maturity value where the amount of discount rate and time are given:

D
M
rt

To compute for the discount rate where the amount of discount, maturity value, and time are
given:

D
r
Mt

Finally, to compute for the discount time where the maturity value, discount amount, and rate are
given:

D
t
Mr

Find the maturity value of P4,500 discount interest for the period of 8 months at 7.5%.

Answer and analysis: The given values are:

D= P 4,500

r= 7.5%

t= 8 months

M=?

To solve for the maturity value:

D
M
rt

4,500
¿
0.75 x 8/12

= P90,000
The term ”To Discount” and the Present Value

The term "to discount" means to determine the present value of an amount In other
words, we are answering the query: What is the value now (present value of a certain amount
payable at a later period?
Before we go further, let us first recall the concept of maturity value of simple interest
discussed in Chapter 1.
The formula to compute for maturity value by the process of factoring is:

Where;
M= Maturity Value
P=Principal
R=rate
T=time
Maturity value refers to the sum of the principal and interest. In other words, it is the
future value of the principal at a certain interest rate.
The principal in simple interest then, is equivalent to the present value od maturity
value or the future amount.
In simple discount, the problem normally states the maturity value. On the other hand,
in simple interest computation, the problem states the principal. The procedure applied to
compute the principal or present value is reversed when computing for simple interest

To solve for principal (P) in the above formula, divide both sides of the equation by (1
+ RT); hence:

Canceling (1 + RT) on the right of the equation, the formula to compute the present value of
simple discount appears as follows:

» ILLUSTRATIVE PROBLEM 2.6

On January 1, 2012, Joylyn discounted P24,750 at 9 1/2% for 2 years and 6 months.

Required: Find the present value of the amount.

Answer and analysis: The problem is asking us to determine the present value of P24,750
which is the value by June 30, 2014, that is, 2 years and 6 months from January 1, 2012.

The principal or present value is computed as follows:

= msm24, 750 kjjjs

[1 + (0.095) x 2.5)]
24, 750
=
1.2375

This means that the present value (value right now) of P amount after a period of 2
years and 6 months at 9.5%—is P20,000.

In simple interest, the present value of the amount is equal to its principal.
3.4 Bank Discount

Bank discount refers to the amount of interest deducted by the bank in advance. The interest is
computed based on the maturity value of the loan. In other words, when the bank discounted a loan, the
borrower receives an amount less than what was borrowed, since the interest has been deducted in
advance.
Bank discount is computed as follows:

Bank discount = Maturity value x Discount rate x Time

The amount that the borrower receives is called proceeds. It is the discounted value of the loan,
and is computed as follows:

Proceeds = Maturity value — Bank discount

Illustrative Example 3☼

Jonard borrowed P 50,000 from Community Bank at 12% discount rate for 1 year and 6
months.
Required: Determine the bank discount and the proceeds of the loan.
Answer and analysis: The borrowed amount is discounted by the bank; hence, the interest will be
deducted in advance. The bank discount is computed as follows:
Bank discount = 50,000 x 0.12 x 1.5
=P 9,000
The P 9,000 bank discount is deducted from the loan amount of P 50,000; hence, the proceeds
of the loan are computed as follows:
Proceeds = 50,000 - 9,000
P41,OOO

As illustrated, the proceeds are determined by computing for the discount first. However, by a
factoring process, we can directly determine the proceeds of the loan without computing for the bank
discount.
The formulas to compute the bank discount and proceeds arc:
Bank Discount = Maturity value x Discount rate x Time
Proceeds =Maturity value — Bank discount

The following notations will be used:

B = Bank discount
Maturity value
D= Discount rate
T = Time
Proceeds

If we substitute the formula of the bank discount to the proceeds formula, the expanded
equation will appear as follows:

By the process of factoring, proceeds is computed as follows:

Applying the derived proceeds formula, the proceeds of the P50,000 loan discounted at 12% for 1 year
and 6 months are computed as follows:

= 50,000 [1 - (0.12 x 1.5)]

= 50,000 (1 -0.18)
= 50,000 (0.82)
= P41,OOO

Determining the Amount of Loan to be Discounted

 In Illustrative Problem 2.7, the loan amount is P 50,000, and the borrower receives only
P41,000 once the bank discounts the loan.
Thus, if the total requirement of Jonard is P50,000 and the bank discounted the loan, he is short
by P9,000. Therefore, he should borrow more than P 50,000 to satisfy his total requirements

Query: How shall we determine the desired loan amount or the size of the loan to be
discounted?
Answer: The size of the loan can be determined by working on the proceed formula.
Directly, the proceeds of the bank discount are determined by the formula:

where:
Proceeds
Maturity value
D =Discount rate
Time
Bearing in mind that the maturity value is the final amount payable on the due date of
the loan, we can determine the desired proceeds by the following process: First, divide both
sides of the equation by (1 — dT). Hence

This cancels the (1 - dT) on the right side of the equation; hence:

The formula indicates that the size of the loan to be discounted is equal to the maturity value.

1. Illustrative Example ☼

Michelle needs P66,800 for an additional working capital. The bank is charging a discount rate
of 11% for are I year and 6 months borrowing.

Required: Determine how much should be loaned by Michelle.

Answer and analysis: The desired amount is P66,800; hence, she should borrow more than
that amount. The amount to be borrowed is computed as follows:
66,800
M (Desired amount) = [1 - (0.11 x 1.5)]
= 66,800
(1 -0.165)
66,800
0.835
= P 80,000

Promissory Notes
A promissory note is a written promise signed by the maker to pay another person a
certain sum of money in a fixed or determinable future time.

The two types of promissory notes are:

1. Simple interest promissory note

 2. Discounted interest promissory note

A promissory note may also be:

An interest-bearing note

A non-interest bearing note

The note is considered interest bearing when a certain interest rate is specified on its
face, while a non-interest bearing note does not mention of any Interest.

In a simple interest promissory note, the amount that appears on the face of the note is
the principal amount. The principal and the interest comprise the total amount payable upon
the maturity date. In the discounted interest promissory note, however, the amount that
appears on the face of the note is the maturity value of the loan.

An example of a simple interest promissory note may appear as follows:

P50,000 Davao City March 1, 2012

Ninety days after date, I promise to pay to the order of Israel
Mendoza Fifty Thousand Pesos for value received with a 12% simple
interest per annum.
Due: May 30, 2012 (Signed) Jiv Capao-an

The parts of a promissory note are as follows:

1 Maker — the person who signs and executes the note because of borrowing. In the
above note, Jiv Capao-an is the maker.

2 Payee — the person who extends credit or lends money. Israel Mendoza is the
payee

1. Face value of the note — the principal or amount borrowed. In the note, the face
value is 50,000.
2. Date of the note— the date the note is made or signed. March 1, 2012 is the date of
making or issuing the sample note.
3. Maturity date — the due date of the note. The note will mature on May 30, 2012.
4. Term of the note — the length of time covered by the note. In the example, it is 90
days from March 1, 2012 to May 30, 2012.

If the sample promissory note is a discounted note, then p 50,000 is equal to the
maturity value of the loan. The borrower, therefore, will receive proceeds less than the
face value of the note.

The payee, in the promissory note, has the right to collect or has a receivable
from the maker. On the other hand, the maker has the obligation to pay the face value of
the note on the maturity date.

A promissory note may be transferred from one person to another. In

transferring the note, the holder endorses it, and perfects the transfer by delivery. A note
that is transferred and accepted by another person is called a negotiable promissory note.

A non-interest bearing promissory note may appear as follows:

 P10,000 Davao City March 1, 2012
Ninety days after date, I promise to pay to the order of Israel Mendoza Fifty
Thousand Pesos for the value received.

Due: May 30, 2012 (Signed) Jiv Capao-an

A non-interest bearing promissory note is basically the same in appearance with an

interest-bearing note, except that it does not mention of any interest rate. Since no
interest is imposed for the loan amount, the maturity value of a non-interest bearing note
is equal to its principal.

Discounting of an Interest-bearing Promissory Note

Promissory notes arise because of credit. Usually, business entities, banks, and persons—
in order to increase their sales or output—extend credit to customers or sale products and
services on account. This type of transaction is usually supported by promissory notes.

Discounting of a promissory note refers to the selling of the note before its
maturity date. It is one way for a business or creditor to finance its receivable. When a
promissory note is discounted, the payee sells the note to the bank and receives the
proceeds at a discount. On the due date, the bank receives the maturity value of the note,
that is, the principal plus the interest.

The following procedures may be observed in discounting a promissory note:

1. Determine the maturity value of the note using the following formula:

Maturity Value = Principal [1 + (Rate x Time)]

2. Determine the discount period. Discount period refers to the remaining period from the
date of discounting up to the maturity date. In counting the remaining number of days
or discount period, always remember to exclude the first day but include the last day.

3. Determine the discount using the following formula:

Discount (D) = Maturity value (M) x Discount rate (d) x Discount period (t)

4. Determine the proceeds using the formula:

Proceeds (W) = Maturity value (M) — Discount (D)

» ILLUSTRATIVE PROBLEM 2.9

On May 15, 2012, Golden Company received a P 120,000, 90-day, 10% simple
interest-bearing note from its customer. The company discounted the note on July 20, 2012 at
Metro Pacific Bank at 12% discount rate.

Required: Determine the proceeds of the discounting.

Answer and analysis: Applying the procedural steps indicated above, the proceed is
computed as follows:

Step 1. Compute the maturity value:

= 120,000 [1 + (10% x 90/360))

= 120,000 (1 + 0.025)
= 120,000 (1.025)

= P123,000

Step 2. Compute the discount period:

Discount period
Maturity date of note is August 13, 2012
(90 days from May 15, 2012) 90 days
Minus expired period (from May 15 to July 20) 66 days
24 days
Step 3.
Compute
the discount:

D=Mxdxt

= 123,000 x 12% x 24/360

=984

Step 4 Compute the proceeds:

= 123,000-984

= P122,016

Therefore, on July 20, 2012, the period of discounting the promissory note, Golden
Company received €122,016 from Metro Pacific Bank, the buyer of the note. On August 13,
2012, the maturity period of the note, Metro Pacific Bank received from the maker of the note
123,000.

Discounting of a Non-interest Bearing Promissory Note

When a non-interest bearing note is discounted, the maturity value is equal to its
principal. In other words, there is no need to compute for the maturity value; hence, the
procedures are less than 1 step from that of discounting an interest-bearing note.

» ILLUSTRATIVE PROBLEM 2.10

Lourdes borrowed ? 15,000 from Jean for a period of 8 months and issued a non-
interest bearing note. After 2 months, Jean sold the note to Banco Negro at

Required: Determine the proceeds.

Answer and analysis: The note issued by Lourdes is non-interest bearing; hence' Jean will
receive the amount borrowed on due without interest. However, the payee sold the note at
12% interest before its due date.

The discount is first computed as follows:

D = 15,000 x 12% x 6/12

900

To compute the proceeds:

w = 15,000-900
Or the proceeds may be directly computed using the formula:

W = M (I-RT)

=15,000 [1 - (12% x 0.5)]

=15,000 (0.94)

In this case, Banco Negro paid Jean 14,100 on the discount date, and the bank received
P1 5,000 on the due date of the loan.

Relationships between Interest Rate and Discount Rate

In discounting promissory notes, there are two types of interests that are used, namely
the interest rate and the discount rate.

The interest rate is the rate that appears on the promissory note; the discount rate is the
rate used by the bank or the buyer of the promissory notes. It is emphasized that interest rate is
different from discount rate. In case, however, that no discount rate is provided, the interest
rate is assumed to be the discount rate.

Another difference between the two is that the interest rate is used to compute the
maturity value of the promissory note. The maturity value is the full amount that the borrower
will pay on the due date. On the other hand, the discount rate is used to determine the discount
and proceeds of the discounting.

However, there is a similarity or direct relation between the interest rate and the
discount rate on either their future values or present values. In the succeeding discussion, we
will evaluate their relationship based on present values.

Let us recall first the present value (the value now) formulas of simple interest and
simple discount.

The formula to compute the present value of an amount at simple interest is:

where:

= Principal

Maturity value

R= Interest rate
T = Time
On the other hand, the formula to determine the present value of a discount is:

D = M (I-dT)

where:
D = Discount
M= Maturity value
d = Discount rate
T = Time
The interest rate (R) is equal to the discount rate (d), if the present value o an amount
at simple interest is equal to the present value of a discount at simple discount rate.
The relationship is expressed as follows:

If we divide both sides of the equation by M, we get:

1
= (1 -dT)
(1 -dT)
Solving for R, we obtain:

d
R=
1−dT

Likewise, solving for d, we have:

R
d=
1−dT

From the above equation, relationships between the interest rate and the discount rate
have been determined as follows:

d R
R= and d¿
1−dT 1−dT

The relations depicted in the equation above do not mean that interest rate equal to
discount rate. Neither do they mean that the interest rate will give the same amount if
discounted. Rather, we can determine the discount rate that is equivalent to the simple interest
or the other way around.

In other words, we are trying to answer this query: What interest rate equivalent to the
discount rate at the present value of an amount?

» ILLUSTRATIVE PROBLEM 2.1 1

Nelly wants to know what interest rate is equivalent to a 10% discount rate if
discounted for 1 year and 6 months. She plans to extend a loan with a maturity value of P
10,000.

Answer and analysis: The problem is asking to determine what interest rate is equal to a 10%
discount rate for a period of 1 year and 6 months.

In this case:

Discount rate =10%

Time = 1 year and 6 months or 1.5 years

The equivalent interest rate is computed as follows:

d 0.10
R= R=
1−dT 1−¿ ¿

= 0.117647 or 11.7647%

This means that a simple interest of 11.7647% is equal to 10% discount rate for a
period of 6 months

Assuming that the future amount is P 10,000, let us prove that the two rates are equal based on
their values
The present value of P 10,000 at 11.7647% simple interest for a period of 1 year and 6 months
is computed as follows

10,000
[1 + (0.117647 x 1.5)]
10,000
(1.1764705)
=P 8,500

On the other hand, the present value of P 10,000 at a discount rate of 10% for a term of
1 year and 6 months is as follows:

D = M (I -dT)

= 10,000 [1-(10%x 1.5)]

= 10,000 (0.85)

Obviously, the simple interest rate of 11.7647% is equal to 10% discount rate for a
term of 1 year and 6 months, since they give the same present value of P 8,500 on the 10,000
future amount.

It can be deduced then from the discussion that the same or equal simple interest and
discount rates for a certain period will not produce equal discounted values. A simple interest
rate of 15% is not equal to a discount rate of 15%.

» ILLUSTRATIVE PROBLEM 2.12

Annie wants to know the discounted value of 10,000 after 1 year and 6 months at the
following rates:

1. 10% simple interest rate

2. 10% discount rate

Answer and analysis 1: Again, the phrase "to discount" means to determine the present
value; hence, the amount given is a maturity value or future value.

The discounted value of 10,000 at 10% simple interest rate for 1 year and 6 months is
computed as follows:

10,000
[1 + (10% x 1.5)1
10,000
1.15

Answer and analysis 2: On the other hand, the discounted value of P 10,000 at 10% discount
rate for the term 1 year and 6 months is computed as follows:

D = M (I -dT)

= 10,000 [1 - (10% x 1.5)1

= 10,000 (0.85)

It can be observed that the discounted value of a simple interest rate is higher than the
discounted value of a discount rate, since in simple interest, the future value or maturity value
is higher than the principal. Usually, the principal appears as the face value of a simple interest
note.

Basically, in a simple interest note, the borrower receives the full face value of the
amount appearing on the notes; while in a discounted note, the borrower receives only the
proceeds. Generally, the proceeds are lower than the maturity value.

Effective Rate of Interest

Effective rate of interest refers to the true or real interest. It is measured based on the
ratio of interest or discount over the sum of the proceeds of the borrowings and their terms.

In a simple interest note, the nominal rate is likewise considered as the true or effective
interest, since the borrower receives the full amount of borrowings. In other words, the
proceeds of the loan are equal to the principal.

Whereas in a discounted interest note, the borrower receives only the proceeds, that is,
the difference between the maturity value and the discount. The proceeds are basically lower
than the face value; hence, the interest in a discounted note is not the true or effective interest
rate.

The formulas to compute the effective interest rate are as follows:

For simple interest note:

Interest
Principal x Time
Effective interest rate =
For discounted interest note:

Discount
Effective interest rate = Principal x Time

ILLUSTRATIVE PROBLEM 2.13

Ruthie plans to borrow €50,000 from City Bank for a period of 2 years and months at
12% simple interest per year.

Required: Determine the effective interest of the loan if Ruthie issues a:

1. Simple interest promissory note

2. Discounted interest promissory note

Answer and analysis 1: In a simple interest promissory note, the amount that appears on the
face of the note is the principal amount the borrower receives on' loan date.

The interest is first determined as follows:

Interest = 50,000 x 12% x 2.5

=P15,000
Then, the effective rate of interest is determined as follows:
 15,000
Effective interest rate =
50,000 x 2.5
15,000
125,000
= 0.12 or 12%
As shown in the above illustrative problem, in a simple interest note, the interest that
appears on the face of the note is also the effective interest rate.

Answer and analysis 2: The amount that appears on a discounted interest promissory note is
the maturity value of the note. This is the amount payable o the due date. Since the note is
discounted or the interest has been deducted advance, the borrower, therefore, receives an
amount lower than the face

The discount is first determined as follows:

Discount = 50,000 x 12% x 2.5

= P15,000

The discount will then be deducted from the maturity value to compute proceeds,
hence:

Proceeds = 50,000 - 15,000

= P35,000

Or we can immediately compute the proceeds using the formula:

Proceeds = Maturity value (1 — RT)

= 50,000 [1 - (12% x 2.5)]

= 50,000 (1 -0.3)

= 50,000 (0.70)

=P35,000

If we compute proceeds using this formula, then the discount is the difference between
the maturity value and proceeds.

The effective interest rate is now computed as follows:

Discount
Effective Interest rate=
Principal x time

15000
¿
35000 x 2.5

15000
¿
87000

= 0.1714 or 17.14 %

Based on the computation made, the effective interest rate of a discounted interest
bearing note is 17.14%. The 12% interest on the borrowing is only a nominal interest rate.

In commercial practice, the borrower usually pays the bank processing fee, Application
fee, attorney's fee, and other similar charges in addition to the interest when applying for a
loan. The additional charges imposed by the bank should be added to the interest or discount
to determine the effective interest or real interest rate charged by the bank.

Partial Payment of Notes

A simple interest promissory note is sometimes settled by the maker or holder through
a series of partial payments instead of a single payment upon reaching the maturity date. In
other words, the whole amount due (maturity value) is settled by a series of payments up to the
due date.

Usually, the problem encountered in this case is the determination of the required
payment to settle the whole obligation on the due date.

These steps may be observed:

1. Compute the maturity value with the entire terms of the borrowing. This is the sum of
all partial payments and the final payment on the due date. In other words, the sum of
all partial payments and the final payment should not be more than the sum of the
principal and the interest;
2. Deduct from the maturity value all partial payment made and unexpired interest
applicable to partial payment. The unexpired interest applicable to partial payment is
counted from partial payment date up to the due date; and
3. The difference between the maturity value (Step 1) and all partial payments, including
the unexpired interest (Step 2), is equal to the balance on the due date.

» ILLUSTRAWE PROBLEM 2.14

Filma borrowed P 30,000 at 12% simple interest per annum payable after 1 year. 4
months thereafter, she paid P 6,000 and made another partial payment of P8,000 after 10
months.

Required: Determine the amount due on maturity date.

Answer and analysis: The borrowing is at simple interest, but before the due date, the debtor
made a series of partial payments.

Applying the steps indicated above, the amount due on the maturity date is computed
as follows:

Maturity value 30,000 [1 + (12% x1)] P333,600

Less: Payments and unexpired interest

1st partial payment P6000

Unexpired interest for the 8 remaining months

(6,000 x 12% x 8/12) 480

2nd partial payment 8,000

Unexpired interest for the 2 remaining months

(8,000 x 12% x 2/12) '160 14 640

Amount due on maturity date P18,960

The maturity value of the borrowing is computed only once, since the interest charged
is a simple interest.
 Mathematics of Investment (Math 106)
BSEd II-Mathematics
AY 2020-2021

ASSESSMENT
A. Discussion:

Answer the following.

1. Discuss the concept of discount.

2. What does the phrase “to discount” mean?

3. Describe bank discount.

4. How is the desired amount of a discounted loan determined?

5. Describe promissory notes.

6. How are the proceeds of a promissory notes computed?

7. Can a non-interest-bearing note be discounted? Discuss.

8. Describe the relationship between interest rate and discount rate.

9. How is the effective interest rate of a simple interest note and discounted interest note
computed?

10. Describe the procedure if there is a partial payment of an interest-bearing note.

B. PROBLEM SET #3

Solve each of the following problem situations.

1. Find the discount and the proceeds on P150,000 note discounted at 10.75% for 2
years and 6 months.

2. Find the maturity value of a P8,610 discount interest for 9 months at 14%.

3. Find the discount rate if the discount interest is P14,880 on P62,000, discounted for 2
years.

1
4. Klysa was granted a loan by Mei Bank for P180,000, at 11 % bank discount rate for
2
9 months. Find the amount received on loan date and amount payable on maturity
date.

Math 106 - Mathematics of Investment o EARamos o 17 | P a g e

 Mathematics of Investment (Math 106)
BSEd II-Mathematics
AY 2020-2021

5. Find the present value of P20,000 at 5% discount rate due at the end of 180 days.

3
6. On July 12, 2018, Joseph borrowed from CapSUDeCo P80,000 at 10 % payable on
4
October 10. If the loan has been discounted, find the effective interest rate.

7. A creditor received a P180,000 promissory note at 8% simple interest for 1 year and
6 months. He discounted the note at Absolute Finance Company after 6 months at a
10% discounted rate. Find the proceeds of the discounting.

8. On April 1, 2016, Dina borrowed from Banco Punco, and the loan is payable after 1
year and 6 months. If the non-interest-bearing note issued was discounted
immediately by the bank at 10%, find the face value of the note if the proceeds
received on discounting was P51,000.

9. A sum of money is due in 10 months. Find its interest rate which is equivalent to a
3
discount rate of 11 %.
4

10. Mariles needs P85,000 to finance the renovation of her store. If she avails
herself of a loan from Rayver Bank that is payable after 8 months, how much should
1
she request if the bank discount rate is 9 %?
2

Aim high… Godspeed, everyone!

-MaamVanj-

Math 106 - Mathematics of Investment o EARamos o 18 | P a g e

 Mathematics of Investment (Math 106)
BSEd II-Mathematics
AY 2020-2021

Math 106 - Mathematics of Investment o EARamos o 19 | P a g e