Scribd
Upload
2 views6 pages

Understanding Discount on Negotiable Papers

The document explains the concept of discount on negotiable paper, defining it as the difference between present worth and future worth, with discount being interest paid in advance. It provides formulas for calculating discount and the rate of discount, as well as an example involving a loan to illustrate these concepts. Key variables include the rate of discount (d) and the rate of interest (i).

Uploaded by

Rheymil Liwan
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
2 views6 pages

Understanding Discount on Negotiable Papers

The document explains the concept of discount on negotiable paper, defining it as the difference between present worth and future worth, with discount being interest paid in advance. It provides formulas for calculating discount and the rate of discount, as well as an example involving a loan to illustrate these concepts. Key variables include the rate of discount (d) and the rate of interest (i).

Uploaded by

Rheymil Liwan
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

DISCOUNT

PREPARED BY: ENGR. D. G. FERNANDEZ


DISCOUNT
DISCOUNT ON A NEGOTIABLE PAPER IS THE DIFFERENCE BETWEEN
THE PRESENT WORTH AND THE WORTH OF THE PAPER AT SOME
TIME IN THE FUTURE. DISCOUNT IS INTEREST PAID IN ADVANCE.
DISCOUNT
Discount = Future Worth – Present Worth

The rate of discount is the discount on one unit of principal for one unit of time.

(1 + 𝑖)−1

0 1

P1.00
DISCOUNT
A figure shown, the Rate of Discount.
𝑑 = 1 − (1 + 𝑖)−1

𝑑
𝑖=
1−𝑑

Where: d = rate of discount for the period involved


i = 𝑟𝑎𝑡𝑒 𝑜𝑓 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑠𝑎𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑
EXAMPLE
1. A man borrowed P5,000.00 from a bank and agreed to pay the loan at the end of 9 months.
The bank discounted the loan and gave him P4,000.00 in cash.
a) What was the rate of discount?
b) What was the rate of interest?
c) What was the rate of interest for one year?
END

You might also like