Understanding Financial Discounts Explained
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ScribdTranslationsUnderstanding Financial Discounts Explained
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ScribdTranslationsDiscount.
Discount.
The discount constitutes the difference between the amount of a debt and its
maturity and the amount received in the present.
It is necessary to distinguish the different concepts of the term discount
applied in the financial system and in commercial activities
commercial.
Discount classes
Banking Rational Commercial
Simple Simple Unit
Compound Compound Successive
Discount.
Symbolism
•D= Descuento
P=Present value or net value of the document
S=Face value of the document, future value
n= Periods of time remaining until the maturity of the security
i = Interest rate per time period applicable on P
•d= Discount rate per time period applicable on S
Discount.
Rational, mathematical, or true discount.
a. Simple rational discount. In a simple rational discount operation, the
present value of the bond-value is calculated using simple interest.
D=S(1-(1/(1+in)))
D = Sin / (1 + in)
The discount in this equation can be interpreted as the interest applied to a
future value (Sin), brought to present value by dividing it by 1 + in.
Equivalence of simple rational discount and simple interest.
D=I
The simple rational discount applied to a future value produces the same
result that the simple interest applied to its present value.
Discount.
Example. A bill of S/. 20,000 maturing in 60 days is discounted.
hoy a una tasa nominal anual del 24%. Calcule: a) el descuento racional simple; b)
its present value; c) the interest that will be charged on the actual amount
disbursed.
Solution
a) Calculation of the discount
D=? D=20000*(1-(1/(1+0.24*(60/360))))
S = 20 000 D=769.23
i = 0.24
n = 60/360
Discount.
b) Calculation of present value.
P=S/(1+in)
P=20000/(1+0.24*(60/360))
P=19230,77
c) Calculation of interest.
I = Pin
I = 19 230,77 x 0,24 x 60/360
I = 769.23
Discount.
Example. What nominal value should a promissory note with maturity be accepted for?
within 65 days paying a nominal annual rate of 18%? The promissory note will be
rationally discounted at simple interest and the required net amount is S/. 8
000.
Solution
S=? S = P[1 + in]
n = 65/360 S = 8,000[1 + 0.18 x 65/360]
i = 0.18 S = 8,260
P = 8 000
Discount.
Example. On the date, there are two obligations of S/. 3,000 and S/. 4,000 that are due.
within 28 and 46 days respectively. What will be the total payment for both?
obligaciones si deciden cancelarse hoy? El acreedor aplica una tasa anual de interés
simple 15% for the bill in 28 days and 18% for the bill in 46 days.
Solution
P=?
S1 = 3 000 P = (S1 / (1 + i1 * n1)) + (S2 / (1 + i2 * n2))
S2 = 4 000 P = (3000 / (1 + 0.15 * (28 / 360))) + (4000 / (1 + 0.18 * (46 / 360)))
n1 = 28/360 P= 6875,47
n2 = 46/360
i1 = 0.15
i2 = 0,18
Discount.
Descuento racional [Link] una operación de descuento racional
Compound, the present value of the security is calculated at compound interest.
D = S[1 - (1 + i)^-n]
Equivalence of compound rational discount and compound interest.
D=I
Example. What amount should a promissory note with a maturity of 60 days be accepted for?
to discount it rationally today, if it is required to have an amount of S/. 10
000? Use a monthly effective rate of 4% and verify the answer.
Solution
S=?
n=2
a) Nominal value S = P (1 + i)^n
S = 10,000 (1 + 0.04)^2 = 10,816
Discount.
i = 0,04
P = 10,000
b) Discount D = S [1 - (1 + i)^-n ]
D = 10,816 [1 - (1 + 0.04)^-2 ] = 816
Verification:
Nominal value: 10816
Discount: (816)
Importe disponible: 10000
Discount.
Example. Calculate the amount to be obtained today by the rational discount of
a promissory note with a nominal value of S/. 8,000 and a maturity in 38 days. The bank
charges an effective monthly rate of 5%, S/. 10 for expenses, S/. 5 for shipping, and makes
in addition a 10% withholding on the present value of the document. Carry out the
settlement.
Solution
P=? S = P[(1 + i)^n + i'] + G
S = 8 000 P = (8000 - 15) / (1.05^(38/30) + 0.1)
n = 38/30 P= 6861.44
i = 0.05
i = 0.1
G = 15
Discount.
Settlement Amount
Nominal value of the promissory note 8 000,00
Discount 6,861.44[l,05^(38/30) - 1] 437.42
Expenses 10.00
Doors 5,00
Retention 6,861.44 x 0.1 686.14
Total deductions (1,138.56)
Available amount 6 861,44
Discount.
Example. The Discount Committee of the Inter-Andean Bank approved today (January 7)
to the company Transur its portfolio of letters, according to the following relationship:
Lyric # Conv. Accepting Amount
420 01-02 6 348 Cargill
510 18-02 8 946 Transported
586 23-02 9,673 Alitec
The bank charges an effective monthly rate of 5% and fees of S/. 5 for each
document. What will be the amount available to Transur today?
Solution
Discount.
Letter # Due. Days Amount Discount Net
420 01-02 25 6 348 252,92 6,095.08
510 18-02 42 8 946 590.66 8,355.34
586 23-02 47 9,673 711,83 8,961.17
Totals 23,411.60
Doors - 15,00
Available amount 23,396.60
D= 6348[1 - (1 + (0.05))^-(25/30)]
Discount.
Compound rational discount Dk accrued in each discount period.
In a compound discount operation, the amounts of the discounts
practiced at the face value of the document decrease geometrically in each
update period. In this case, the question arises: what is the amount?
discounted in each period?
Starting from the future to reach the present, we derive the discount formula.
carried out in any period k.
For any given period k, its respective discount Dk can be calculated with the
next formula:
Dk = Si(1 + i)^-k
Discount.
Example: A promissory note with a nominal value of S/. 5,000 and with a due date
On November 29, it was discounted with 120 days remaining until its maturity.
applying a monthly effective rate of 5%. Calculate its present value and the
mathematical discount applied every 30 days.
Solution
205.67 215.96 226.76 238.10
4 3 2 1 0
P= 4113,51 4319.19 4535,15 4761,90 S=5000
Discount.
The document expires on November 29, its future value of S/. 5,000 is the value
nominal or amount of the promissory note.
On October 30, there are 30 days (1 period) left until the due date. The present value
on that date it is 4,761.90 and its discount is 238.10.
As of September 30, there are 60 days (2 periods) left until the due date. The value
present on that date is 4,535.15 and its discount is 226.76. The discount
The accumulated total is 464.86 (238.10 + 226.76).
The successive discounts are applied in a manner similar to the above.
Discount.
Fecha Días Valor presente Monthly desktop Accumulated desktop
29-11 0 5,000.00 0.00 0.00
30-10 30 4 761,90 238.10 238.10
30-09 60 4,535.15 226.76 464.86
31-08 90 4,319.19 215.96 680.82
01-08 120 4 113,51 205.68 886.49
a) Calculation of the present value P = S [1 - (1 + i)^-n ]
P = 5,000 [ (1 + 0.05)^-4 ] = 4,113.51
Discount.
b) Calculation of periodic discounts D = Si (1 + i)^-k
K=1 D1 = 5,000 x 0.05 (1 + 0.05)^-1 = 238.10
K=2 D2 = 5,000 x 0.05 (1 + 0.05) ^ -2 = 226.76
K=3 D3 = 5 000 x 0,05 (1 + 0,05)^-3 = 215,96
K=4 D4 = 5 000 x 0,05 (1 + 0,05)^-4 = 205,68
Discount.
Bank Discount.
Simple bank discount. The simple bank discount is the product of the value
nominal of the document, the discount rate and the number of periods remaining
for the expiration of the operation.
D = Sdn
S = D/(dn)
d = D/(Sn)
n = D/(Sd)
Discount.
Example. Calculate the simple bank discount as of March 3,
about a document with a nominal value of S/. 5,000 and date of
expiration on April 15. The monthly discount rate is
5%.
Solution
D = ? D = Sdn
S = 5 000 D = 5 000 x 0,05 x 43/30
d = 0.05 D = 358.33
n = 43/30
Discount.
Example. Determine the nominal value of a promissory note whose amount
The bank discount has been S/. 500. The operation has been
carried out with a monthly simple discount rate of 5% in
a period of 45 days.
Solution
S=? S = D/dn
D = 500 S = 500/(0,05 x 45/30)
d = 0.05 S = 6,666.66
n = 45/30
Discount.
Example. Calculate the simple bank discount rate applied to
a promissory note with a nominal value of S/. 6,666.66 and whose discount has been
S/. 500 in a period of 45 days.
Solution
d=? d = D/Sn
S = 6,666.67 d = 500 / (6666.67 x 45/30)
D = 500 d = 0.05
n = 45/30
Discount.
Example. How many days has the bank discount been made?
a promissory note with a nominal value of S/. 4,000, using a rate of
simple monthly discount of 4%, if a net amount was received
from S/. 3,500?
Solution
n = ? days n = D/Sd
S = 4 000 n = 500/(4,000 x 0.04/30)
d = 0.04/30 n = 93.75
D = 500 n = approximately 94 days
Discount.
Calculation of net worth.
P = S(1 - dn)
The liquid value of a bank discounted document is the
import that the discounting party receives for the document. In an operation
of bank discount, the net value is less than its respective value
present, because it has been obtained by applying a discount rate on
the amount or nominal value of the document, which is necessarily
higher than the amount actually received by the discounting party.
Discount.
Example. What will be the net value obtained from the discount?
banknote with a nominal value of S/. 2,000? The note is
discounted 38 days before its maturity with a discount rate
simple monthly of 5%.
Solution
P=? P = S(1 - dn)
S = 2,000 P = 2000(1 - 0.05 x 38/30)
d = 0.05 P = 2,000 x 0.9366666667
n = 38/30 P = 1 873,33
Discount.
Calculation of the nominal value.
S=P(1/(1-dn))
Example. What amount should be drawn for a letter originated by a sale of
a credit article whose cash price is S/. 1,500? The financing is
60 days with no down payment. The payment will be subject to simple bank discount.
at a monthly discount rate of 4%.
Solution
S=? S = P[1/(1 - dn)]
P = 1 500 S = 1 500[1/(1 - 0.04x2)]
n=2 S = 1,630.43
d = 0.04
Discount.
Compound bank discount.
The compound bank discount consists of a series of calculations of
simple discounts where, first, the discount is applied for
a period on the nominal value of the debt at its maturity,
finding its net value at the end of the first period (evaluating from
right to left), or at the beginning of the second period. To this value
the discount is applied for the second time finding its value
liquid payable within two periods and so on for all
the periods of the time horizon, understood between the date that
makes the payment of the net amount of the document effective and the date of
maturity of the debt.
Discount.
Calculation of net value.
P = S (1 - d)^n
Example. On March 7, the company Entursa, a client of the bank
American accepted a promissory note of S/. 9,000 due in 90 days. What
it was the net value that Entursa received on that date if the nominal annual rate
The discount was 48%, with a banking discount period of every 30 days?
Solution
P=? P = S(1 - d)^n
S = 9,000 P = 9,000(1 - 0.04)^3
n=3 P = 7 962,62
d = 0.48/12
Discount.
Example. A promissory note with a nominal value of S/. 5,000 is discounted.
banking 6 months before its maturity applying a rate
advanced at 18% annually with monthly compounding. What amount
Should it be paid to cancel it 2 months before its expiration?
Solution
P=? P = S(1 - d)^n
S = 5,000 P = 5,000(1 - 0.015)^2
n=2 P = 4,851.13
d = 0.18/12
Discount.
Calculation of the nominal value
S = P (1 - d)^-n
[Link] empresa Texnor requiere disponer un valor líquido de S/. 5 000.
To this end, it uses its line of discount for promissory notes, what should be the value
nominal of the document with a due date of 60 days and at a nominal annual rate
of 48% with a monthly bank discount period?
Solution
S=? S = P(1 - d)^-n
P = 5,000 S = 5,000(1 - 0.04)^-2
n=2 S = 5,425.35
d = 0.48/12
Discount.
Calculation of compound bank discount
D = S[1 - (1 - d)^n ]
Example. Find the compound bank discount of a bill whose
the nominal value is S/. 7,000 and matures in 45 days. The nominal rate
annual is 36% with a monthly discount period.
Solution
D=? D = S[1 - (1 - d)^n ]
S = 7,000 D = 7,000[1 - (1 - 0.03)^1.5 ]
n = 1.5 D = 312.63
d = 0.36 / 12
Discount.
Compound bank discount Dk accrued in each period of
discount
In a manner similar to the rational discount Dk, it is possible to calculate the
compound bank discount Dk accrued in each period of
discount. For any given period k, its respective discount Dk
it can be calculated using the following formula:
Dk = Sd (1 - d)^(k-1)
Discount.
Example. A promissory note with a nominal value of S/. 5,000 and whose date of
the due date is November 29 and it was bank discounted
120 days before its expiration, applying an annual rate
60% advance with monthly capitalization. Calculate its value.
present and the discount applied in each 30-day period.
Solution
214,34 225,63 237,50 250
4 3 2 1 0
P=4072,55 4286,88 4512.50 4750 S=5000
Discount.
Fecha Días Valor líquido Descto. mensual Descto. acum.
29-11 0 5000.00 0.00 0.00
30-10 30 4 750,00 250.00 250.00
30-09 60 4 512,50 237,50 487,50
31-08 90 4,286.88 225.63 713.13
01-08 120 4 072.53 214.34 927.47
a) Calculation of present value
P = S (1 - d)^n
P = 5,000 (1 - 0.05)^4 = 4,072.53
Discount.
b) Calculation of periodic discounts
D = Sd (1 - d)^(k-1)
k = 1 D1 = 5,000 x 0.05 (1 - 0.05)^(1-1) = 250.00
k = 2 D2 = 5 000 x 0,05 (1 - 0,05)^(2-1) = 237,50
k = 3 D3 = 5 000 X 0,05 (1–0,05)^(3-1) = 225,63
k = 4 D4 = 5,000 x 0.05 (1 - 0.05)^(4-1) = 214.34