Simple Discount
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ScribdTranslationsSimple Discount
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ScribdTranslationsDiscount is the reduction granted on a payment or debt due to various circumstances.
Among the most
promotions, liquidations, etc. are common.
Successive discounts
One way to calculate the discounts applied to an amount is through the discount procedure.
successive, which consists of applying to the original amount the different discounts granted, that is: where
P is the original amount or price of a merchandise, and t, t', t", t"', etc., are the different discounts that are granted.
EXAMPLES:
A typewriter worth $20,000.00 received two successive discounts of 3.5% and
6%. What was its final price?
Mr. X bought a car worth $57,000.00. After he received three discounts
successive rates of 2%, 4%, and 6% respectively; what was the final price? Therefore, Mr. X paid for the
$50,408.06
Exercises:
A merchandise with an initial price of $25,000.00 was subjected to three successive discounts of 4%, 8%, and 10%;
What was its final value? 2. A car cost $155,000.00. It was purchased at an auction with two successive discounts.
of 2% and 3%; what was its final value?
Bank or commercial discount
The bank or commercial discount is the interest on the nominal value, and it is determined by the interest between the
maturity of the debt and the discount date at a certain rate, valued at the nominal value. To understand
clearly the previous concept, it is advisable to find the difference between an interest rate and a rate of
discount.
The difference between an interest rate and a discount rate lies in the fact that the former is defined
as the quotient of the amount of interest 'P' earned during the year divided by the initial capital or principal, while
a discount rate is the quotient of the amount of interest (or discount) earned during the year, divided by
the amount at the end of the year. The bank discount is also known as interest paid in advance.
To find the formula for bank discount, it is necessary to apply it to the nominal capital on which it is granted.
discount, the corresponding discount rate, that is to say:
Dc = S dt
The present value of the nominal capital S will be given by the difference between that capital minus the discount obtained.
that is to say:
P = S – Dc where:
Dc = bank discount
s = nominal discount value
d = discount rate
time
P = present value
Substituting the value of De we have
P = S - S dt
Therefore
P = S (1–dt)
EXAMPLES
1. A bank grants an 8% discount. If a customer signs a document for $2,500.00 for four months, what
What amount will the bank give you?
Therefore, the discounted amount is $66.67. To find out how much the bank will give you, we obtain the present value:
Therefore, the bank will give you $2,433.33.
A bank charges 4.5% interest in advance (discount). If an account holder signs a document for
$1000.00 in six months; what amount will you receive from the bank? Therefore, the discounted amount is $22.50. For
to know how much you will receive, you must find the present value: Therefore, the account holder will receive $977.50.
Exercises:
What is the commercial discount of a document for $5,000.00 at three months, if the bank charges 6%?
discount?
2. A bank charges 5% interest in advance. If Mr. González signs a document for $2,300.00 for four
months, what amount will you receive from the bank?
Rational or fair discount
Both rational or fair discount and commercial discount are the known procedures for calculating
simple discounts: this discount is calculated on the value of an existing capital, unlike commercial ones that are
applies to the nominal value. Following the analogy of commercial discount, it is stated that the rational discount is equal to:
Dr = S–P
or well
Dr = P i t
the present or current value is equal to the capital minus the discount,
P = S - Dr
Replacing in the previous formula the value of Dr, it is obtained that:
P = S - Pit;
S = P + Pit
S = P (1 + it)
solving for P will give the present value (of the discount):
EXAMPLES:
1. Determine the present value and the rational discount as of January 1 of a document for $5,500.00 payable on the 15th.
from February, assuming a simple interest rate of 2% per year. Therefore, the present or current value of the promissory note
it is $5,486.47.
The rational discount amounts to: Dr = 13.53
2. What is the rational discount of $1,500.00 in three months, at 6% simple annual interest?
Therefore, the current value is $1477.83.
Exercises:
1. Determine the value as of March 15 of a document for $3,000.00, payable to
April 15, assuming a simple interest rate of 4%.
2. What is the rational discount of $2,000.00 in four months, at an annual interest rate of 4.5%.
