Chapter 10

Bank Discount
𝑩𝒂𝒏𝒌 𝑫𝒊𝒔𝒄𝒐𝒖𝒏𝒕 = 𝐴𝑚𝑜𝑢𝑛𝑡 ∗ 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒 ∗ 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑃𝑒𝑟𝑖𝑜𝑑

𝐼′ = 𝑆 ∗ 𝑑 ∗ 𝑛

𝒑𝒓𝒐𝒄𝒆𝒆𝒅𝒔 = 𝐴𝑚𝑜𝑢𝑛𝑡 − 𝐵𝑎𝑛𝑘 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡

𝑃′ = 𝑆 − 𝐼′
𝑃′ = 𝑆 − 𝑆 ∗ 𝑑 ∗ 𝑛
𝑃′ = 𝑆(1 − 𝑑 ∗ 𝑛)

Where:
▪ 𝐼 ′ : 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 (𝐼𝑛𝑣𝑒𝑟𝑠𝑒 𝑜𝑓 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡)
▪ 𝑆: 𝐴𝑚𝑜𝑢𝑛𝑡 (𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦 𝑉𝑎𝑙𝑢𝑒)
▪ 𝑑: 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒
▪ 𝑛: 𝑇𝑖𝑚𝑒 (𝑚𝑢𝑠𝑡 𝑏𝑒 𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
▪ 𝑃′ : 𝑃𝑟𝑜𝑐𝑒𝑒𝑑𝑠 (𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒)

Key words: Discount, Discount rate, Proceeds and interest in advance.

Note:
𝐼′
▪ Discount rate: 𝑑 =
𝑆∗𝑛
𝐼′
▪ Time: 𝑛 =
𝑆∗𝑑
𝑃′
▪ Amount: 𝑆 =
(1−𝑑∗𝑛)

Page 1 of 3
 Exercises:
(1) A person promised to repay an amount of $700 at the end of 60 days. If the
bank charges 18% discount rate. What is the discount and how much does this
person receive?

Solution:
60
𝐼 ′ = 𝑆 ∗ 𝑑 ∗ 𝑛 = 700 ∗ 0.18 ∗ = $21
360
𝑃′ = 𝑆 − 𝐼 ′ = 700 − 21 = $𝟔𝟕𝟗

(2) A man wants $5000 in cash as proceeds of 90-day loan from a bank that
charges 16% discount. What is the amount that man must pay on the maturity
date?

Solution:
𝑃′ = 𝑆(1 − 𝑑 ∗ 𝑛)
𝑃′ 5000
𝑆= = = $𝟓𝟐𝟎𝟖. 𝟑𝟑
(1 − 𝑑 ∗ 𝑛) (1 − 0.16 ∗ 90 )
360
(3) A man received a 30-day loan of $550 from a bank. The proceeds were
$544.50. what was the discount rate?

Solution:
𝐼 ′ = 𝑆 − 𝑃′ = 550 − 544.50 = $5.50
𝐼′ = 𝑆 ∗ 𝑑 ∗ 𝑛
𝐼′ 5.50
𝑑= = = 0.12 ∗ 100 = 12%
𝑆 ∗ 𝑛 550 ∗ 30
360

Page 2 of 3
(4) A man got a loan of $770 as proceeds and $800 as an amount that charges
15% interest in advance. what was the duration of that loan?
Solution:
𝐼 ′ = 𝑆 − 𝑃′ = 800 − 770 = $30
𝐼′ = 𝑆 ∗ 𝑑 ∗ 𝑛
𝐼′ 30
𝑛= = = 𝟎. 𝟐𝟓 𝒚𝒆𝒂𝒓.
𝑆 ∗ 𝑑 800 ∗ 0.15

Page 3 of 3