SIMPLE

DISCOUNT
In simple discount, the interest is calculated based on the final amount and is paid at the start at a particular
period of time, in short interest is paid in advance. It is a percentage of the amount or maturity value and
not
a percentage of the principal.

To discount an amount is the same as finding the present value of an amount at a simple discount rate.

Let:
Future Value =F= be the amount of the loan

Proceeds =P= the amount received by the borrower after the interest has been deducted
Discount =D= the amount deducted by the lender, called the interest-in-advance
Simple Discount rate = d = rate used to compute discount amount
Term =t= term of the discount
 Formula:

D=Fd t or D = F - P

Formulas derived from the discount formula:

a. discount rate = or d =

b. term = or t =

c. Amount of the loan = F = or F =

d. Proceeds = P = F – D or P = F (1-dt)
Illustration Problems:
1. Angel borrowed P300,000 from the PLMCCI for a term of five years. The interest charged is 2%
simple discount rate. Find the proceeds of the loan.

Solution:
Solve for the discount amount:
D = Fdt
D = 300,000 x .02 x 5
D = P30,000.00

Solve for the proceeds:

P=F–D
P = 300,000 – 30,000
P = 270,000

Alternative Solution:
P = F (1-dt)
P = 300,000 (1- (.02 x 5))
P = 270,000
2. How much should Jaydee borrow too have P500,000 now if he promised to pay back Vince
in 3 years at 1.5% simple discount.

Solution:
F=

F=

F = 523,560.21
3. How long should P120,000 be discounted to have a proceeds of P90,000 at 10%
simple discount rate?

Solution:

t = 2.5 years
4. What is the discount rate if P48,000 is the proceeds of the loan of P72,000 which is due after 9
months?

Solution:

d = .444444 or 14.44%
5. What is the amount of a loan for 7 years at 6% simple discount rate if its proceeds is
P15,500.

Solution:
F=

F=

F=

F = P26,724.14
6. Discount P14,250 from July 8, 2013 to December 12, 2013 with simple discount rate of 3 ½ %

Solution:
First, solve for the actual time
Original Date: July 8 (31-8) 23
August 31
September 30
October 31
November 30
Maturity Date: December 12
Actual Time: 157 days

Then, solve for the proceeds

P = F (1-dt)

P=

P = P14,035.35
 Promissory Note is a written agreement or commitment by the borrower, called the maker, to settle
an amount, to a lender, called the payee, at a certain period designated. In the legal aspects, it is an
unconditional promise in writing made by the lender to the borrower, signed by the maker, engaging
to pay the demand, a sum of money to order or to the bearer.

There are two kinds of promissory notes:

1. Interest-bearing note – is the note where the interest rate is specified so that the face value is not the
same to the maturity value.

Example:
P100, 000 San Andres Bukid, Manila March 22, 2014

Three hundred days after date, I promise to pay to the order of Ms. Fely De Dios the
amount of one hundred pesos (P100, 000) with interest at 5% per year.

(Sgd) Mr. Lito Dlcruz

•Non-interest bearing note – is the note where the face value is equal the maturity value but does not
automatically mean that the original loan did not bear interest.

Example:

P100, 000 San Andres Bukid, Manila March 22, 2021

After one hundred twenty days, the undersigned promises to pay to the order of Ms. Fely
De Dios, the sum of one hundred thousand including all interest due on maturity, payable at
Land Bank of the Philippines, San Andres, Manila.

(Sgd) Mr. Lito Dlcruz

 There are two types of promissory notes:

1. Simple interest note – it is a type of a note written on the origin date and
redeemable on the maturity date with the maturity value equivalent to the face
value and the interest. The principal amount of this note is called the face value of
the note.

2. Bank discount note – it bears an amount called the maturity value. The interest on
the note has been computed and charged in advance. Proceeds is the amount
received by the maker of the
note.
Illustration Problems:
Kyle bought the following note December 10, 2009, who discounts the note at 7%. Solve the
proceeds of the sale.

P100, 000 San Andres Bukid, Manila March 22 2021

Three hundred days after date, I promise to pay to the order of Ms. Fely De Dios the
amount of one hundred pesos (P100, 000) with interest at 5% per year.

(Sgd) Mr. Lito Dlcruz

Solution:
Since it is a simple note, first we have to solve for the note’s future value.
F = P (1 + rt)
F = 100,000 (1 + (.05) (99/360)
F = P101,375.00
Then, solve for the term of discount.
Origin date: April 18 (30-18) 12
May 31
June 30
July 31
August 30
September 31
October 30
November 31
Maturity date: December 10
Actual Days 236 days
To solve of the term of the discount, subtract actual days from the term of the note.
td = 300 - 236 = 64

Now, compute for the proceeds.

P = F (1 – dt)
P = 100,000 ( 1 – (.05 x 64/360))
P = P99,111.11
2. Mrs. Nita has a note for P10,000 dated June 17, 2013. The note is due in 180 days with simple
interest rate of 15%. If she sells the note on September 6, 2013 at a bank charging a discount rate of
10%, find the interest, maturity value, maturity date, term of discount, bank discount, proceeds.

Solutions:
a. Interest I=Prt
I = 10,000 x .15 x 180/360
I = P750.00

b. Maturity Value F=P+I

F = 10,000 + 750
F = 10,750.00

c. Term of Discount
td = June 17, 2013 + 180 days
td = 81 + 180
td = 161 days
d. Maturity date Md = 317 – 249
Md = 68 days

e. Bank discount D=Fdt

D = 10,750 x .15 x 68/360
D = 304.58

f. Proceeds P=F-D
P = 10,750 – 304.58
P = 10,455.42
THANK YOU VERY
MUCH!!!