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SIMPLE
DISCOUNT
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Definition of Discount

the amount deducted at the beginning

of the loan period instead of being added
at the end.
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SIMPLE INTEREST vs SIMPLE DISCOUNT
Loan Repayment
Type of Note Interest
Amount Amount
Face
Simple Value Maturity
+ Interest =
Interest (Principal) Value

Bank
Simple
Proceeds + Discount = Face Value
Discount
(Interest)
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Terminologies

 Bank Discount (D) – the amount of

interest charged.
 Proceeds (P) – the amount of
money the borrowers receive.
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Notations to be used:

 F = Maturity Value or Face Value

 P = Proceeds
 D = Bank Discount
 d = Rate of Discount
 t = time period
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FORMULAS
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BANK DISCOUNT
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Example 1. A bank loan for 10,000 is

discounted at 12% for 270 days.
How much was the discount?
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Solution

Given: F = 10,000
d = 12% = 0.12
t = 270 days = 0.75 yr
D=?
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Example 2. Emmanuel needed

20,500 for 90 days and applied to his
bank for a loan. When the bank was
satisfied that the loan would be
repaid as promised, it made the loan
at a discount rate of 8%. How much
was deducted from the loan?
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Solution

Given: F = 20,500
d = 8% = 0.08
t = 90 days = 0.25 yr
D=?
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PROCEEDS
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Example 1. The SBP Bank is

currently charging 12% discount rate.
Find the proceeds on a 17,800 note
for 60 days.
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Solution

Given: F = 17,800
d = 8% = 0.08
t = 60 days = yr
P=?
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Example 2. A bank loan of 19,000 is

discounted at 11%. If the loan is due
in 120 days, what are the proceeds?
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Solution

Given: F = 19,000
d = 11% = 0.115
t = 120 days = yr
P=?
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MATURITY VALUE OR FACE
VALUE
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Example 1. A discount of 300 is

charged for a 72-day loan of August
1. If the discount rate is 16%, how
much would be repaid at maturity?
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Solution

Given: D = 300
d = 16% = 0.16
t = 72 days = 0.2 yr
F=?
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Example 2. What is the maturity

value of a note that is discounted at
8% for 126 days if the maker
receives 20,023.20 as proceeds?
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Solution

Given: d = 8% = 0.08
t = 126 days = 0.35 yr
P = 20,023.20
F=?
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DISCOUNT RATE
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Example 1. Jezreel signs a 42,000,

120-day note at the bank and
received proceeds of 41,300. What
is the discount rate?
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Solution

Given: F = 42,000
t = 120 days = yr
P = 41,300
d=?
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Example 2. Ysabel signed a 9,700

note that her bank discounted. The
note will mature in 108 days. The
proceeds were 9,350.80, just enough
to pay an invoice due after 108 days.
What was the discount rate?
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Solution

Given: F = 9,700
t = 180 days = 0.3 yr
P = 9,350.80
d=?
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TERM OF A LOAN (TIME)
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Example 1. Melody signs a 4,500

note. The bank charges 18%
discount rate and the proceeds are
3,487.50. Find the term of the note.
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Solution

Given: F = ,500
d = 18% = 0.18
P = 3,487.50
t=?
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Example 2. A note, having a face

value of 16,000 was discounted at
8%. If the discount was 896, find the
term of the loan.
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Solution

Given: F = 16,000
d = 8% = 0.08
D = 896
t=?
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END OF LESSON