1.

4 SIMPLE DISCOUNT
O We saw earlier that “to discount”
means to find the present value P.
O The “discount” on F is given by the
formula
I=F-P
D=F-P
O We call the discount D, the interest
in advance.
O In some cases, the interest on a loan is
deducted in advance.
O We call the interest deducted in advance as
simple discount.
O In this case, the borrower pays the original
sum of money borrowed at the end of the
term at a specified interest rate charged in
advance.
O Thus the amount, F, due at the end of the
term, t, is charged an interest in advance at
simple discount rate, d. That is,
O D = Fdt
O Since F=P + I, then it follows that
P = F - I.
O The value P is what the borrower
receives at the beginning of the term.
We call this value, proceeds.
Thus, the proceeds, P is computed as
P = F – D, P = F – Fdt
P = F(1–dt) .
Solving for F, we have F = P/(1-dt).
O It can easily be seen that the formula
for proceeds (for simple discount) is
similar to that of the formula for the
principal (for simple interest).
O It may be safe to state that the terms
principal and proceeds may be used
equivalently. We use the term present
value for this purpose.
EXAMPLES:

1. How much interest will be collected

in advance from a loan of ₧15,000
for 4 years if the discount rate is 14%?
Solution:
Given: F = ₧15,000; t=4 years d=14%=.14
D = Fdt
D = 15,000x.14x4
D = ₧8,400.
EXAMPLES:
2. Discount ₧18,500 for 2 years and
6 months at 10% simple discount.
Solution:
Given: F = ₧18,500; t=2.5yrs; d=10%=0.10
To discount means to find P:
P = F(1-dt)
P = 18,500[1 - 0.10(2.5)]
P = ₧13,875.
EXAMPLES:
3. Find the proceeds and the
discounts on ₧13,000 due at the
end of two years at 8 % simple
discount.
Solution:
Given: F = ₧13,000; t=2yrs; d=8%=0.08
P = F(1-dt)
P = 13,000[1 - 0.08(2)]
P = ₧10,920.
EXAMPLES:
4. On June 11, 2017, Mr. Santos received
₧25,590 from a credit union and promised
to pay ₧30,000 on December 20, 2017. If
the interest was deducted in advance, what
was the discount rate?
Solution:
Given: P= ₧25,590; F = ₧30,000;
te= exact time bet. June 11 to Dec. 20, 2017
D 30,000  25,590
d   0.275625
Ft 30,000(192 / 360)
d  27.56%