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Discount Rate
Discount Rate
SI =PRT/100, A= P+SI
Simple discount
P = A-SD
1. Find the simple discount and the present value of ₹ 2000 loan for six
months at 8%.
SD = Adt = 2000*.08*0.5 =
SD = 80
P =A –SD = 2000-80 =1920
A= P(1+i)n = compounding
D =A-P
2. Find the present value and discount on ₹3000 due in 4 years at 8% discount
rate, discounted annually.
0 8% 4
3000
P =3000(1-0.08)4
D = 3000-2149 = ₹851
Let x =(0.92)4
Log x = log(0.92)4
0.92 = 92 * 10-2
Log x = 4 * (-0.0362)
Log x = (-0.1448)
X= Antilog (-0.1448)
X = antilog (-1+1-0.1448)
X= .7164
3000*0.7164
3. Find the present value and discount on ₹2000 due in 4years at 8% discount
rate, convertibly half yearly.
P =A (1-d/m)n, m=2, d =0.04, n= 8
P =2000(1-.04)8
P=2000(0.96)8
Let x = (0.96)8
Taking log on both sides,
Log x = log (0.96)8
Log x = 8 log (0.96)
Log x = 8 (log 96*10-2)
Log x = 8 ((log 96 + (-2) log 10))
Log x = 8(1.9826-2)
Log x = 8(-0.174)
Log x = -0.1392
X =antilog (-0.1392)
X=antilog (-1+1-0.1392)
X=antilog (-1 + 0.8608) =7244+13 = 7.257 *10 -1=0.7257
X=0.7257
2000*0.7257 = 1451
D=2000-1451 = 549
4. If the present value of ₹6000 due in 2 years at a certain nominal rate of
discount, convertible quarterly is ₹5536.47. find the rate of discount
P=5536.47
A=6000
T=2, m= 4, n=8
Quarterly discounting = d/4
P=A(1-d/4)8
5536.47=6000(1-d/4)8
5536.47/6000 = (1-d/4)8
0.9227=(1-d/4)8
Taking log on both sides,
Log(0.9227) =log(1-d/4)8
Log(92.27*10-2) = 8 log (1-d/4)
Log 92.27 + log 10-2 = 8 log (1-d/4)
1.9650 -2 = 8 log log (1-d/4)
-0.035 = 8 log (1-d/4)
-0.035/8 = log (1-d/4)
Log (1-d/4) = -0.004375
1-d/4 = antilog (-0.004375)
1-d/4 = -1+1-0.004375
1-d/4 = -1 + 0.995625
1-d/4 = antilog (-1 + 0.995625)
1-d/4 = 9.900*10-1 = 0.9900
1-d/4 = 0.9900
1-0.9900 = d/4
0.01 = d/4
D=0.01*4 = 0.04
D=4%
5. Wat is the PV of ₹2000 due after 5 years from now if the discount is
convertible continuously at a discount rate of 8%?
P=Ae-rt
A=2000
T=5 yrs
R=8%=0.08
P=2000e(-0.08*5)
P=2000e(-0.40)
P=2000*0.6703 = 1340.6
re = (1+r/m)m – 1
Relationship between nominal discount rate and effective discount rate
de=1-(1-d/m)m
de= 1-e-d
b. de=1- (1-0.09/2)2
de=1-(1-d/m)m
m=2, de=6%
0.06 = 1 – (1-d/2)2
(1-d/2)2 = 1-0.06
(1-d/2)2 = 0.94
1-d/2 = √0.94
1-d/2 = 0.9695
1-0.9695 = d/2
0.03046 = d/2
0.03046*2 = d
D = 6.09%
9. What nominal rate of discount convertible half yearly which is equivalent to the
nominal rate of discount 8% convertible quarterly?
de=1-(1-d1/m)m, m=2
1-(1-d1/m)m = 1-(1-0.08/4)4
1-(1-d1/2)2 =1 –0.9224
1-(1-d1/2)2 = 0.0776
1-0.0776 = (1-d1/2)2
0.9224 = (1-d1/2)2
0.9604 = 1- d1/2
d1/2 = 1- 0.9604
100, d=6%, 94
d=r/(1+r) = this relation is used to find the rate of discount corresponding to the
rate of interest.
10. Find the rate of discount corresponding to the rate of interest 6%.
d=r/(1+r)
r=d/(1-d)